Staff Reporter
As the deadline for U.S. tariff hikes on Canada and Mexico approaches, global currency markets are bracing for potential volatility. The Canadian dollar is expected to feel the impact, with signals from FX options indicating heightened activity.
President Donald Trump has set a 25% tariff deadline on imports from Mexico and Canada for Saturday, aiming to pressure both countries to curb illegal immigration and fentanyl trafficking into the U.S. While Trump confirmed his intent to impose these tariffs, he has not clarified whether oil imports will be affected.
Implied single-week volatility for the Canadian dollar has surged to its highest level since October 2022, while the Mexican peso is experiencing its highest volatility since the U.S. elections last November. This uptick in implied volatility suggests that traders are preparing for a significant shift in these currency pairs, though the direction of that shift remains uncertain.
The options market, often utilized by investors and businesses to hedge against risk, is showing signs of increasing anxiety within spot currency markets.
Following President Trump’s recent comments, the U.S. dollar surged over 1% against the Canadian dollar in just minutes, reaching a near five-year high of C$1.4596 before retreating. As of Friday, the dollar was trading around C$1.4484 in London.
The Mexican peso is also facing instability. After a decline of more than 1% against the U.S. dollar on Thursday, it was trading around 20.68 per dollar on Friday. Notably, approximately 27% of Mexico’s gross domestic product (GDP) is derived from exports to the U.S., which represent 83% of the country’s total exports. Since Trump’s election victory last year, the peso has experienced declines of over 1% against the dollar on at least seven occasions.
In contrast, volatility in other currencies sensitive to trade tensions, such as the euro and Chinese yuan, has decreased as Trump’s focus remains primarily on the Americas.
