Yuan, Peso, and Dollar Tumble: Trump Tariffs Spark Currency Crisis

The Chinese yuan, Mexican peso, and Canadian dollar have all hit record lows or tumbled in recent weeks, as President Trump's tariff threats and actions have sent shockwaves through global currency markets. The depreciation of these currencies has significant implications for investors and the global supply chain, as trade tensions and tariffs disrupt international commerce.



Chinese Yuan (CNY)

The yuan has depreciated against the U.S. dollar, reaching its lowest level since 2010. The primary factors driving the yuan's depreciation include widening yield differentials with the U.S., weaker-than-expected economic data, and global market uncertainties (Source: Zhou Maohua, Economist, Everbright Bank; Vaibhav Tandon, Chief International Economist, FT). The yuan's depreciation is unlikely to be sustained in the long term, as the Chinese economy is expected to recover in the second half of the year, driven by policy stimulus and the rebound of the services industry (Source: Robin Xing, Chief China Economist, Morgan Stanley).

Mexican Peso (MXN)

The Mexican peso has also depreciated against the U.S. dollar, with President Trump's renewed pledges to slap 25% tariffs on imports from Mexico sending the peso plunging (Source: Bloomberg). Political noise and uncertainty have also contributed to the peso's depreciation. A blanket tariff on Mexico could see the peso losing 10% of its value against the greenback, according to Deutsche Bank economist Francisco Campos. Money managers are also likely to ditch the nation's dollar bonds, and shares of companies that export to the U.S. may post losses (Source: Bloomberg).



Canadian Dollar (CAD)

The Canadian dollar, or loonie, has also depreciated against the U.S. dollar, hit by Trump's threats of 25% tariffs on Canadian imports (Source: Bloomberg). The loonie may be dragged down even more, to the lowest in over two decades, if tariffs are 25%, pushing the Bank of Canada to lower interest rates much further than planned, while pushing the economy into a deep recession (Source: Sarah Ying, Head of FX Strategy, CIBC Capital Markets). The loonie may even get close to its all-time record low reached in 2002 in the aftermath of harsh levies and Canada's measures in response (Source: Wall Street strategists).

Implications for Investors and the Global Supply Chain

The depreciation of the yuan, peso, and loonie has significant implications for investors and the global supply chain. The tariffs make exports from these countries less competitive in the U.S. market, leading to potential disruptions in bilateral trade volumes and integrated supply chains. The consequences of these tariffs may include shifts in global supply chains, decreased investment, and higher prices for consumers.

Investors in CAD-, MXN-, and CNY-denominated assets may face lower returns due to the currency's depreciation, while investors in safe-haven assets like gold may benefit from increased demand. The tariffs may also lead to a decrease in foreign investment in the affected countries, as investors may be hesitant to invest in a country with a depreciating currency and uncertain trade relations with the U.S.

In conclusion, the recent tariffs imposed by President Trump on Canada, Mexico, and China have significant implications for the long-term fundamentals of their respective currencies and for investors in these markets. The tariffs could lead to a depreciation of the CAD, MXN, and CNY against the USD, making imports more expensive and potentially leading to higher inflation. Investors in CAD-, MXN-, and CNY-denominated assets may face lower returns due to the currency's depreciation, while investors in safe-haven assets like gold may benefit from increased demand. The tariffs may also lead to a decrease in foreign investment in the affected countries, as investors may be hesitant to invest in a country with a depreciating currency and uncertain trade relations with the U.S.