The Canadian dollar fell after Trump announced a 35% tariff on Canadian goods. However, some clarification about tariff exemptions for USMCA goods helped ease the shock. This allowed the CAD to recover slightly, but it still remained lower against the USD. Other currencies like the EUR, AUD, NZD, GBP, JPY, and CHF also experienced declines. Equity markets also took a hit, with E-mini S&P 500 and NASDAQ futures declining. Traders are hoping Trump might retract the tariffs, which could boost market confidence.

Currency Movements

In currency movements, the AUD/USD pair bounced back to its previous levels. Still, the EUR, GBP, NZD, and CHF need to regain more ground. The Japanese yen remained mostly unchanged, sticking close to its high of 146.80. The USD/CAD exchange rate is being closely monitored, as the CAD has shown slight signs of improvement after the initial shock. As mentioned earlier, the Canadian dollar lost value after Trump’s tariff announcement. Although there was some reassurance about goods under the USMCA agreement not being affected, the damage wasn’t completely reversed. The market recovered a bit, with the CAD regaining some losses but still below its previous levels. Other major currencies also faced pressure, indicating a broader impact rather than just an isolated event.

Equity Indices and Market Sentiment

The decline in equity indices, especially the S&P 500 and NASDAQ futures, reflects new uncertainty. This weakened sentiment spread across the financial system, as traders now expect a potential reversal of the initial policy shock. No actions have been taken yet, but the mere possibility of a change seems to be encouraging short-covering in both equities and currencies. Looking at specific currency pairs, the Australian dollar has managed to regain its footing, returning to levels seen before the trade discussions intensified. Meanwhile, other major currencies like the euro, British pound, and kiwi still have some ground to make up. The Swiss franc has shown limited resilience. The Japanese yen has remained steady, without significant movement after reaching 146.80. One key point of interest is the USD/CAD pair, which is now in focus. The loonie shows marginal strength, and any recovery will depend on changes in policy from Washington. For those monitoring short-term rates, this is where the focus should stay. The current volatility is affecting option pricing and implied volatility curves. From a broader perspective, we need to consider if the market has fully adjusted for this round of policy changes or if there is still a misalignment. The less decisive movements in both the yen and euro suggest that traders are cautious about holding long positions in uncertain circumstances. The bounce back in the AUD shows how clarity can positively influence currencies, indicating potential gains for others under similar conditions. As we look ahead, it seems that the overall sentiment is leaning towards a risk-off approach unless news shifts back toward diplomatic solutions. Commodity currencies are helping counter some pressure with their yield profiles, leading us to expect more mixed trading towards the week’s end, especially in North American pairs where positioning is broader than usual. For our strategy, we will focus on building defensive delta positions and closely managing gamma during overnight hours. Premiums are currently high and likely to remain that way unless clear developments in Washington restore even temporary confidence. Carry positions remain advantageous, but only when paired with liquid hedges that offer flexibility in either direction. Overall, current levels suggest that range extension is more likely than a return to previous levels, at least while risk appetite is low. We are, therefore, managing exposure with a strategy of incremental commitment rather than full allocation. Create your live VT Markets account and start trading now.

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