Global currency markets are bracing for increased volatility based on signals from the foreign exchange options market, with the Canadian dollar in focus as the deadline for US tariffs on top trading partners Mexico and Canada approaches.
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| Global currency markets are bracing for increased volatility as the deadline for US tariffs on trading partners Mexico and Canada approaches. (Source: Getty) |
The options market, which investors and companies often use to hedge risks, is showing growing nervousness in the spot currency market.
Within minutes of Donald Trump’s January 30 tariff comments, the US dollar rose more than 1% against the Canadian dollar and hit a nearly five-year high of CAD1.4596 per US dollar before falling back. In London trading on January 31 (local time), the pair was hovering around CAD1.4484 per US dollar.
The Mexican peso has also been volatile. After weakening more than 1% against the greenback on January 30, the currency traded at around 20.68 pesos to the dollar on January 31.
On January 30, President Trump reaffirmed that he would impose tariffs and declared that oil imports "may or may not" be excluded.
President Donald Trump has set a February 1 deadline to impose 25% tariffs on imports from Mexico and Canada in an effort to force the two countries to stop the flow of illegal immigrants and fentanyl (a painkiller) into the United States.
Expected volatility for the Canadian dollar rose to its highest level since October 2022 last week. For the Mexican peso, it was at its highest level since the November 2024 US election.
High expected volatility shows that traders are preparing for a strong move in a currency pair, but the direction is not yet clear.
Demand for USD/CAD volatility options is strong, said Sagar Sambrani, a senior FX options trader at investment bank Nomura.
According to him, the USD/CAD and USD/Peso pairs are at the center of discussion as the threat of short-term tariffs from President Trump still hangs over both countries.
He said that since President Trump took office, the expected future volatility of most other currency pairs has decreased significantly. But both USD/CAD and USD/Peso have had very high monthly volatility over the past two months.
ING bank currency strategist Francesco Pesole said traders will look to the US-Canada-Mexico situation as a benchmark for Mr Trump's trade policy going forward.
He added that if President Trump fails to follow through on his threat by February 1, the market will see the US dollar depreciate not only against the Canadian dollar and the peso but also against other currencies that carry tariff risks such as the euro, the Australian dollar and the New Zealand dollar.
Source: https://baoquocte.vn/bom-thue-quan-cua-ong-trump-de-doa-thi-truong-tien-te-toan-cau-302786.html
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