Dollar gains as Trump sees more tariffs on Canada, Mexico

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(Bloomberg) — The dollar bounced back after U.S. President Donald Trump posted the biggest drop in 14 months in February after he said he may impose 25 percent tariffs on Mexico and Canada.

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Bloomberg’s dollar gauge rose 0.7% in Asia after falling in New York trade on Tuesday as headlines on fresh tariffs prompted a rush to the reserve currency. The Canadian dollar and Mexican peso fell around 1% on a greenback on the news.

“If 25% tariffs are coming on Mexico and Canada, big tariffs on China will follow shortly,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “The dollar has room to trade higher.”

The collapse of the dollar underscores just how aggressive traders are around their operations and the impact they have on the global economy. Monday’s headlines were about how the Trump administration would stop implementing tariffs immediately after taking office, sending whiplash to the $7.5 trillion-a-day foreign exchange market.

The 10-year Treasury yield was down eight basis points on the day at 4.55%, after earlier dropping as much as nine basis points. The risk-sensitive Australian and New Zealand dollars also fell.

“Volatility on the back of Trump’s off-the-cuff comments will be a regular feature,” said RBC Capital Markets strategist Alvin Tan. “Trump likes to pontificate, but he doesn’t always follow through on his comments. But the market cannot ignore them either.

China’s offshore yuan gained more than 1 percent in New York trading and fell 0.3 percent after Trump earlier threatened to impose tariffs on the country’s exports. The People’s Bank of China kept the yuan’s benchmark rate at its strongest level since Nov. 8, boosting support for the currency.

“Be flexible — that’s all I can think of right now,” Serena Zhu, an economist at Mizuho Securities Asia Ltd., said of currencies. “Trying to predict certainty is very difficult,” she said.

— on Jahan Yom.

(Updates in paragraph 6 with commentary from commentators.)