The recent escalation of US tariffs has significantly impacted several major currencies, including the Euro (EUR), Canadian Dollar (CAD), and Australian Dollar (AUD). Here’s a detailed overview of how these currencies have been affected:
Euro (EUR)
- Impact of Tariffs: The EUR/USD pair initially weakened due to concerns over US tariffs, particularly those affecting European goods like cars and machinery. However, the euro rebounded above 1.0300 as investors seemed to ignore Trump’s tariff threats temporarily[3].
- Economic Context: The Eurozone economy faces challenges such as economic contraction risks and inflation below the ECB’s target. This vulnerability makes the euro susceptible to trade tensions[3].
- Monetary Policy: The ECB is expected to continue reducing interest rates, with some policymakers suggesting rates might need to go below neutral levels due to weak economic conditions[3].
Canadian Dollar (CAD)
- Impact of Tariffs: Canada is heavily affected by US tariffs on steel and aluminum imports, being a leading exporter of aluminum. This has put pressure on the CAD, making it one of the biggest casualties among currencies due to these tariffs[5][9].
- Economic Outlook: Despite positive employment data in January, ongoing tariff threats have kept CAD under pressure against USD. The outlook remains uncertain with potential further trade actions from the US[5][7].
- Market Reaction: USD/CAD rose but then gave up some gains amid volatility triggered by tariff fears. Investors are cautious about future developments in trade policies affecting Canada[5].
Australian Dollar (AUD)
- Impact of Tariffs: Although Australia has modest steel and aluminum exports to the US compared to other countries like Canada or China, AUD still faces downward pressure due to its close economic ties with China amidst escalating US-China trade tensions[1][4].
- Monetary Policy Expectations: Market expectations suggest a high probability that the Reserve Bank of Australia will cut interest rates at its upcoming meeting in February 2025 due to moderated inflation growth and dovish central bank signals[1][10].
- Trade War Concerns: AUD/USD showed resilience despite initial drops following new tariff announcements but remains sensitive to broader global trade dynamics involving China and other key trading partners for Australia[4].
Overall, while each currency reacts differently based on specific economic ties and export dependencies on the United States or other nations involved in trade disputes, all three face challenges from ongoing tariff uncertainties.
Citations:
[1] https://www.teletrade.org/analytics/market-analysis/market-news/4033957
[2] https://www.tastyfx.com/news/top-5-currencies-that-could-be-most-affected-by-trump-s-tariffs/
[3] https://www.fxstreet.com/news/eur-usd-rebounds-while-us-trumps-tariffs-threats-keep-it-on-tenterhooks-202502100756
[4] https://www.ig.com/ae/news-and-trade-ideas/how-aud-usd-holds-firm-despite-tariff-turbulence-250210
[5] https://www.fxstreet.com/news/usd-cad-gives-up-majority-of-intraday-gains-outlook-remains-firm-on-trumps-tariff-threats-202502101432
[6] https://convera.com/blog/foreign-exchange/markets-cheer-mild-tariffs-amid-elevated-risks/
[7] https://www.cityindex.com/en-uk/news-and-analysis/canadian-dollar-outlook-usdcad-into-2025-trump-tariff-threat-looms/
[8] https://www.reuters.com/markets/currencies/forex-markets-brace-canada-mexico-swings-us-tariff-deadline-looms-2025-01-31/
[9] https://www.corpay.com/resources/market-analysis/market-briefing-tariff-related-market-wobbles
[10] https://www.ssga.com/library-content/assets/pdf/global/cc/2025/currency-market-commentary-january-2025.pdf
[11] https://www.ig.com/en/news-and-trade-ideas/eur-usd–gbp-usd-and-aud-usd-drop-like-a-stone-amid-trump-tariff-250203
