March 4, 2025
- Trump hits Canada, Mexico with 25% tariffs, China hit with a 20% levy.
- EU President proposing €800 billion “Rearm Europe Plan”
- USD opens lower except against Mexican peso
FX at a Glance
USDCAD: open 1.4428, overnight range 1.4410-1.4521, close 1.4484
Trumpassholeasaurus Rex rampaged through financial markets yesterday and continued overnight, leaving stock markets and oil prices nursing steep losses. It all started Tuesday afternoon when President Trump said, “Tomorrow, tariffs—25% on Canada, and 25% on Mexico—and that will start tomorrow. So they’re going to have a tariff, and what they have to do is build their car plants, frankly, and other things, in the United States, in which case you have no tariffs.”
USDCAD spiked from 1.4427 to 1.4544 in a knee-jerk reaction to the news before traders realized, “Hey, we knew that would happen.” The gains were fully reversed overnight. Prime Minister Trudeau reacted by saying, “No worries—trade wars will balance themselves.” Not really, but he is a “dead politician walking,” and whatever he says is meaningless drivel.
However, Ontario Premier Doug Ford stepped up to fill the leadership void. He told NBC’s Meet the Press that he would shut off Ontario electricity exports to the US while blocking shipments of high-grade nickel. Other Premiers, like Alberta’s Danielle Smith and Saskatchewan’s Scott Moe, support Ford’s threats but only through words, not deeds. Both premiers want Canada to retaliate—as long as the retaliation does not involve their exports.
USDCAD is trading defensively due to the increased risk that Trump’s trade war drives the US economy into a recession, which would force the Fed to lower rates faster than previously expected.
USDCAD option expiries will be front and center today. There are reportedly $2.0 billion of 1.4400-10 strikes and another $1.5 billion of 1.4415-25 strikes expiring today. Prices should fhover around this area until 10:00 am.
WTI oil prices dropped to 67.44 from 70.34 yesterday due to the threat of a global trade war and OPEC + Russia’s decision to increase production by 130,000 barrels/day beginning April 1. In addition, more crude is flowing from the Kurdistan pipeline. Canadian oil exports are subject to a 10% tariff increase, but they are trading at an 11.74/b discount to WTI.
There are no Canadian economic reports released today, and the US data is third-tier.
USDCAD Technicals.
The intraday USDCAD technicals are bullish while trading above 1.4410, looking for a move above minor resistance at 1.4460 to extend gains to 1.4550.
The daily chart indicates USDCAD has a bullish bias, while the Bollinger bands suggest a rising risk of volatility in a 1.4000-1.4650 range. The MACD is bullish while the RSI is neutral.
For today, USDCAD support is 1.4370 and 1.4340. Resistance is at 1.4460 and 1.4490
Today’s Range: 1.4380-1.4480
Chart: USDCAD daily
European Arms Race Begins
The Trump/Putin mutual admiration society, combined with America’s decision to abandon support for Ukraine, was a wake-up call for the European Union. EU President Ursula von der Leyen proposed a “Rearm Europe Plan,” which, if adopted, could fuel an €800 billion arms race. President Trump has all but announced his decision to leave NATO, partly because BFF Putin is no threat to the USA and largely because NATO members continually failed to live up to defense spending commitments. Why should American taxpayers foot the bill to defend European (or Canadian) interests?
Tariff Fall-out
The US dollar is taking a bit of a beating (which is what Trump wants) due to tit-for-tat tariffs triggering a recession in the US (not what Trump wants). Traders are now expecting that the Fed will cut rates three times in 2025, compared to just two rate cuts last week.
Equity Indexes Bleed Red Ink
The onset of Trump’s global trade war sent the S&P 500 index down 1.76% yesterday and knocked the NASDAQ 2.64% lower. The theme continued in Asia, with all the major indices closing with losses. Australia’s ASX 200 fell 0.58%, and Japan’s Topix dropped 0.71%. European bourses have not fared any better. The German DAX is down 2.17%, and the French CAC 40 index has lost 1.19%. S&P 500 futures are down 0.13%, while the US 10-year Treasury yield sits at 4.167% compared to yesterday’s peak of 4.267%. Gold prices climbed to 2,916.40.
EURUSD
NY Open: 1.0512, Overnight Range: 1.0471-1.0528
EURUSD shrugged off the trade war news and appears to have rallied on news of a new arms race in Europe. The FX reaction suggests that if the EU is to spend nearly €1 trillion on weapons, it is the kind of fiscal stimulus needed to boost economic growth—that is, if Russia doesn’t leave the continent a smoking wasteland. News that the Euro area unemployment rate was unchanged at 6.2% was ignored.
GBPUSD
NY Open: 1.2723, Overnight Range: 1.2679-1.2741
GBPUSD is consolidating gains after prices climbed from 1.2583 yesterday to 1.2741 overnight due to both the fear of a tariff-sparked US recession and the prospect that the Fed cuts rates more than expected. The gains were exacerbated by short GBPUSD positions, which triggered stop losses on the break of 1.2670.
USDJPY
NY Open: 148.79, Overnight Range: 148.60-149.65
USDJPY is trading below its overnight low due to safe-haven yen demand and because Fed rate cuts may be deeper than previously anticipated. In addition, the BoJ is expected to raise rates by 25 bps by July.
AUDUSD
NY Open: 0.6224, Overnight Range: 0.6187-0.6230
AUDUSD recovered yesterday’s losses on the back of broad US dollar weakness. Domestic retail sales rose 3.0% m/m in January, but the news was overshadowed by the trade war. The RBA minutes were a non-event as they reiterated that policymakers would take a cautious approach to future rate cuts.
NZDUSD
NY Open: 0.5627, Overnight Range: 0.5596-0.5633
NZDUSD price action tracked that of AUDUSD and was supported by the outlook for US interest rates.
USDMXN
NY Open: 20.8738, Overnight Range: 20.6686-20.9340
USDMXN rallied following Trump’s tariff announcement, but unlike the Canadian dollar, it failed to recover overnight despite widespread US dollar selling pressure. USDMXN demand was exacerbated due to a series of economic reports that suggested slowing Mexican economic growth.
FX high, low, open (as of 6:00 am ET)
China Snapshot
PBoC fix: 7.1739 vs exp. 7.2727 (prev. 7.1745)
Shanghai Shenzhen CSI 300 fell 0.06% to 3885.22
China responded to Trump with a new 15% duty on US poultry and agricultural products including wheat, corn and cotton. 10% tariffs hit soybeans, beef, fruit, vegetables and dairy. The Ministry of Commerce added 15 US firms to its export control list while another 10 firms were added to the “unreliable entity list.”
Analysts view China’s response as “measured as they failed to target key US companies with a heavy reliance on China.
Sources: Yahoo Finance, Oanda, Investing.com,
