(Bloomberg) -- The Canadian dollar and Mexican peso strengthened, as investors cheered fresh signs of a reprieve from crippling US tariffs that came into effect just days ago.
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Both currencies jumped to session highs earlier on Thursday, after US Commerce Secretary Howard Lutnick signaled that President Donald Trump might walk back some of the planned levies. The gains held later in the session, after Trump said in a social media post that he will exempt Mexico from his new 25% tariffs on any goods and services that fall under the North American trade agreement, known as USMCA.
The rapid reversal “helped alleviate growth and inflation concerns from prolonged tariff disruptions,” said Dan Pan, an economist at Standard Chartered Bank.
It’s not clear whether Trump will extend the full USMCA pause to Canada. Earlier, Canadian Prime Minister Justin Trudeau said conversations on tariffs with the US are continuing, and that a call with Trump was “constructive.”
The loonie rose as much as 0.7%, while the peso climbed 1%. The Bloomberg Dollar Spot Index dropped as much as 0.4%, down for a fourth session.
Tariffs threaten a severe negative supply shock that could push the Canadian economy into recession, which hasn’t been reflected yet in currency prices, said Skylar Montgomery Koning, a currency strategist at Barclays Plc.
“If tariffs are maintained, at some point the market will be forced to react, especially as the impacts feed more convincingly into Canadian data, and that should boost USDCAD,” she said.
Later on Thursday, the peso held on to gains as Mexican President Claudia Sheinbaum held a press conference after her call with Trump, saying that Mexico’s goal is to avoid US tariffs altogether. The country’s trade team continues to work on a deal with the Trump administration, she said.
Whirlwind
Currencies from both countries have seen frenzied trading in recent days, as market participants reacted to shifts in the Trump administration’s tariff plans. The US applied across-the-board 25% tariffs on Canada and Mexico earlier this week, with the exception of Canadian energy, which faced a 10% rate. The two nations have hinted at retaliatory measures.
On Wednesday, Trump offered a one-month exemption to automobiles covered by USMCA, and administration officials were considering exempting certain agricultural imports. The president has tied the tariffs, as well as a 20% duty on China, to the flow of illicit fentanyl and migration into the US.