USD rebounds on renewed tariff threats – Scotiabank

After yesterday’s stock market swings, it’s back to tariffs for FX today. The US Dollar (USD) has strengthened broadly overnight as President Trump renewed his threat of hefty tariffs and specifically mentioned auto tariffs for Canada and Mexico. The FT reported that Treasury Sec. Bessent favored universal tariffs starting at 2.5%, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD recovers as President Trump renews tariff threats

“The USD is trading broadly firmer on the session, with the snap higher in the DXY from yesterday’s soft performance (and recovery back above the upper 107 zone on the index) suggesting the firmer tone may persist for now. Investors continue to carry significant long USD positions, however, which suggests the potential for significant gains is limited, absent renewed incentives.”

“The AUD and NZD are the weakest of the major currencies on the session, weighed down by CNY losses. The ZAR and—despite the tariff threat—MXN are the session’s outperformers, however, with improved risk appetite perhaps offsetting some of the tariff negatives for the peso. The shake out in tech stocks boosted demand for havens yesterday, with the bid in Treasurys pulling US 10Y yields back to the 4.50% point. That may be something of a pivot point for FX in the near-term—still lower US yields will undercut the USD a little more while a rebound in yields should backstop the USD at least.”

“With the Fed just around the corner, markets may settle somewhat in the short run. Yields may rebound a little later this week if the Fed holds policy, as is widely expected, and suggests it is moving to the sidelines for the next few months to assess developments. US data releases this morning include Durable Goods, housing data, Consumer Confidence and the Richmond Fed Manufacturing Index. The consensus call for Durables is a 0.6% M/M rise. Aircraft may be a drag, however.”