The time limit for the increase in US tariffs on the two top trading partners has a global currency market that is strengthened to increase volatility, the FX option signal, with Canadian dollars on a cross line.
President Donald Trump set a Saturday deadline to impose a 25% tariff on imports from Mexico and Canada in an effort to encourage them to stop illegal and fentanyl migrants from entering the US
Trump emphasized again on Thursday that he would impose a tariff and import of oil “possible or not” excluded.
Canadian-dollar volatility which was implied for one week which included a period during the weekend has jumped to the highest since October 2022. For the Mexican Peso, he was at the highest point since the US election last November.
Higher implicit volatility shows that traders position sharp steps in currency pairs, without determining direction.
Sagar Sambrani, a senior FX option trader in Nomura, said there was a significant request for one volatility option in the US dollar/Canadian currency pair.
The option market, where investors and companies usually protect, show an increase in nervousness in the spot currency market.
The dollar jumped more than 1% to the Canadian dollar in a matter of minutes after Trump’s latest comment, reaching the highest level of almost five years c $ 1,4596, before resigning. It was traded around 1,4484 in London on Friday.
Peso Mexico is also choppy. After weakening more than 1% of Greenback on Thursday, it was traded around 20.68 per dollar on Friday.
ECB sets a road for more cutting, but how aggressive is that?
Mexico exports to US accounts for around 27% of gross domestic product, and 83% of total exports. Peso has fallen more than 1% of the dollar on at least seven opportunities since the victory of Trump’s election last year.
With Trump’s focus strongly on America, volatility in other currencies that are vulnerable to trade tension such as Euro and Yuan China have fallen.
“USD/CAD and USD/MXN are at the forefront of the discussion because the threat of short -term tariffs from President Trump is still hanging in both countries,” Sambrani said, referring to the Canadian and Mexico currencies versus the US dollar.
“Since the inauguration of the president, we have observed implicit volatility in the future in most FX pairs significantly reduced but the two pairs have a volatility of one month close to their highest over the past two months”.
Strategy Expert Francesco Pesole added that traders will treat the US-Canada-Mexican situation as “benchmarks for Trump’s trading policy to move forward.”
“If Trump does not give his threat tomorrow, we must see the dollar not only opposed the Canadian dollar and Mexican Peso but also with other currencies that instill tariff risk (such as Euro, Australian Dollars and New Zealand dollars),” he added.
Source: Reuters (reporting by Alun John and Dhara Ranasinghe; Editing by Alexander Smith)
