Global Trade Relief Fuels Currency Gains Against US Dollar

January 21, 2025 11:54 AM AEDT | By Team Kalkine Media

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Global Trade Relief Fuels Currency Gains Against US Dollar — Image source: shutterstock

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Highlights

Key currencies gained strongly against the US dollar, supported by trade optimism.

Avoidance of immediate tariffs sparked a rally in the Mexican peso and Canadian dollar.

Australian and New Zealand dollars showed sharp rebounds from recent lows.

Global financial markets experienced a wave of optimism as the Mexican peso, Canadian dollar, and Chinese yuan surged over 1% against the US dollar. This movement followed President Donald Trump's decision to hold back on implementing new tariffs during his first day in office, alleviating concerns about potential trade conflicts.

Trump had previously hinted at imposing duties of up to 10% on global goods, with a targeted 60% levy on Chinese imports. Canadian and Mexican products were also in the crosshairs, with a proposed 25% import fee. These potential actions raised fears of escalating inflation and igniting a full-blown global trade war. However, the absence of immediate action eased investor concerns, boosting currency markets.

The rally extended to other global currencies as well. The Australian dollar (ASX:FXA) gained 1.4% against the US dollar, rebounding to $0.6274 after recently hitting a five-year low of $0.6129. Similarly, the New Zealand dollar (NZX:NZD) surged to reclaim losses sustained over the past weeks. Both currencies have been under pressure due to global uncertainty, but this recent turn marks a possible stabilization.

The relief in trade tensions positively influenced commodity-linked currencies such as the Canadian dollar (TSX:CAD), which showed resilience after facing downward pressure in previous sessions. The Mexican peso (BMV:MEX) also stood out, benefiting from optimism surrounding trade with the United States.

While immediate tensions appear to have subsided, underlying concerns about future tariff policies and global inflation persist. Analysts will closely monitor any further announcements from the U.S. administration that could impact international trade.

For markets, this rally demonstrates the importance of trade-related developments on currency valuations. In the coming weeks, trade dynamics and policy decisions are expected to remain critical in shaping the outlook for currencies worldwide.

This movement serves as a reminder of how swiftly markets can react to geopolitical factors, emphasizing the need for diversified strategies amid global uncertainties. With heightened volatility across major currencies, staying informed about economic and policy shifts is essential.

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