The Canadian dollar experienced a decline following Trump’s announcement of a 35% tariff on Canada. Despite this, there was clarification regarding tariff exemptions for USMCA goods, which partially eased the initial shock. This led to some recovery for the CAD, although it remained lower against the USD, with other currencies such as the EUR, AUD, NZD, GBP, JPY, and CHF also affected.
Equity markets also experienced a downturn, with E-mini S&P 500 and NASDAQ futures falling. Traders anticipate a possible retraction from Trump, which could help restore market confidence.
Currency Movements
In currency movements, the AUD/USD pair was able to recover to its prior levels. However, the EUR, GBP, NZD, and CHF still have more ground to regain. The Japanese yen showed minimal changes from its high point of 146.80.
The USD/CAD exchange rate continues to be closely watched, as the CAD displayed slight signs of improvement after the initial impact on the market.
The statement earlier outlines how the Canadian dollar lost value after Trump announced a 35% tariff aimed at Canadian goods. Although there was some reassurance that items under the USMCA agreement would not be affected, this didn’t fully unwind the damage. The market pulled back a little, with the currency clawing back a portion of its losses, though it still hovered below where it had been before. Other major currencies also faced direct pressure, pointing to a broader ripple effect rather than an isolated market move.
Equity Indices and Market Sentiment
The fall in equity indices, particularly the S&P 500 and NASDAQ futures, served as a reflection of fresh uncertainty. Weak sentiment filtered through the broader financial system, with traders now pricing in a potential partial reversal from the initial policy shock. Although no actions have been taken yet, simply the possibility of a walk-back seems to be enough to feed short-covering behaviour across both equities and currency positions.
As for specific currency pairs, the Australian dollar had managed to find its footing again, edging back to where it was before the trade talk flared up. We now look at other majors like the euro, sterling and kiwi, which remain lagging. There’s work left for them to return to earlier ranges. The Swiss franc sits in a similar camp, showing less resilience so far. The Japanese yen, meanwhile, has held in a narrow zone, lacking any follow-through after touching the upper edge of 146.80.
What stands out now is the persistence in the USD/CAD pair, which has become a clear focal point. With the loonie showing marginal strength again, the pace of recovery will rely on a shift in policy language or concrete movement in Washington. For those watching short-term rate sensitivities, this is where attention must stay – especially given the added volatility feeding into option pricing models and implied vol curves.
From a broader view, we must consider whether pricing has fully accounted for this round of policy posturing, or whether the market remains misaligned. One way to interpret the stalled movements in the yen and euro is that lower conviction dominates, as traders weigh the cost of staying long in uncertain conditions. The bounce in AUD demonstrates what can happen when clarity emerges, which suggests that legs higher are possible elsewhere on similar signals.
As we set strategies moving forward, it’s worth noting that the general preference appears to lean risk-off unless headlines tilt back toward diplomacy. With commodity currencies balancing some of the pressure through their yield profile, we anticipate more two-sided trade toward the end of the week, most likely concentrated in North American pairs where positioning remains wider than normal.
For our approach, we focus on defensive delta builds, with tighter gamma management in overnight windows. Premiums are elevated and likely to stay there unless we see movement in Washington that reinstates even short-lived confidence. Carry remains favourable, yet only when paired with liquid hedges that offer optionality in either direction. The read-through on current levels is that range extension is more probable than a reversion, at least while risk appetite remains subdued. We are therefore managing exposure with a view toward incremental commitment rather than full allocation.
