Canadian Dollar and Mexican Peso Plummet as US Tariffs Loom

The Canadian dollar (CAD) and Mexican peso (MXN) have reached one-month lows as the US prepares to impose tariffs on its neighboring nations. President Donald Trump's announcement of a 25% tariff on imports from Canada and Mexico, set to take effect on March 4, has sent shockwaves through currency markets, with both the CAD and MXN depreciating significantly against the US dollar (USD).



The CAD fell as much as 1.2% against the USD on February 1, following Trump's announcement, and has since continued to slide, touching its lowest level since 2020 earlier this year. The Mexican peso, meanwhile, has also been hit hard, losing nearly 3% of its value against the USD on March 4. Money managers are ditching Mexican dollar bonds, and shares of companies that export to the US are expected to post losses.

The US dollar, meanwhile, has surged, with the Bloomberg Dollar Spot Index jumping 0.5% on March 4, the largest increase in three weeks. The USD's strength can be attributed to investors seeking refuge in the greenback as a safe-haven asset amid global economic uncertainty and trade tensions.

The Canadian and Mexican economies are highly dependent on trade with the US, with exports to the US accounting for 20.6% and 27.4% of their respective GDPs. The implementation of 25% tariffs on imports from these countries could trigger a recession in both nations, as well as push the Bank of Canada to lower interest rates further than planned.

The US economy, too, will be impacted by the tariffs, with higher inflation and potential retaliation from Canada and Mexico. The Federal Reserve is expected to respond by pausing its easing cycle and keeping rates higher for longer to fend off this new inflationary pressure. However, retaliatory tariffs and a stronger dollar could hurt US exporters and lead to a slowdown in economic growth.

In conclusion, the Canadian dollar and Mexican peso have plummeted to one-month lows as the US prepares to impose tariffs on its neighboring nations. The US dollar, meanwhile, has surged, driven by investor demand for a safe-haven asset amid global economic uncertainty and trade tensions. The Canadian and Mexican economies, as well as the US economy, will all be impacted by the tariffs, with potential long-term implications for their respective currencies and economic growth.