Dollar Surges on Trump's Tariff Threats, Stocks Primed for Losses

Amid heightened trade tensions, the US dollar experienced a surge in early Asian trading, while stocks braced for losses. This escalation was sparked by the imposition of 25% tariffs on Canada and Mexico and 10% tariffs on Chinese goods, as threatened by US President Donald Trump.

Currency and Stock Market Impacts

The US currency strengthened against major rivals, pushing the Canadian dollar to its lowest point since 2003, the euro to its lowest since November 2022, and the Mexican peso to a nearly three-year low. US stock futures tumbled by over 2%, and Australian shares declined by 1.8%.

Oil Price Surge and Haven Asset Flight

The escalation in trade tensions fueled a flight to haven assets due to growing uncertainty regarding inflation, central bank policy easing, and Trump's future actions. Oil prices jumped, while the S&P 500 reversed its gains and fell 0.5% following the White House announcement.

Dollar's Safe-Haven Appeal

The dollar's rise is driven by expectations that tariffs will exacerbate inflationary pressures and maintain elevated US interest rates. This, combined with the perceived harm to foreign economies, enhances the greenback's safe-haven appeal.

Sector Exposure and Counter-Tariffs

Traders are monitoring volatility in stock markets, particularly in sectors vulnerable to trade wars. Industries such as automakers and electric vehicle manufacturers face significant exposure to Mexico and Canada.

Retaliatory Measures and WTO Complaint

Canada's Prime Minister Justin Trudeau responded with a 25% counter-tariff on $107 billion of US goods. Mexico's leader, Claudia Sheinbaum, pledged retaliatory measures, while China's Commerce Ministry vowed "corresponding countermeasures" and threatened to file a complaint with the World Trade Organization.

Data and Events to Watch

Markets will closely monitor Australian retail sales, the China Caixin manufacturing PMI, and earnings reports from companies exposed to the tariffs. Key economic events this week include the Eurozone's manufacturing PMI and CPI, the UK's manufacturing PMI, and the US nonfarm payrolls report.