The USD/JPY currency pair continues to face downward pressure, marking its third consecutive day of decline and hovering near monthly lows at around 154.00. This persistent slump comes amid escalating economic tensions and renewed tariff threats from U.S. President Donald Trump. The first round of tariffs between the U.S. and its trading partners, particularly Canada and Mexico, is scheduled to take effect on February 1, 2024, contributing to market volatility.
The economic landscape is further complicated by signals from Banco de México (Banxico), indicating potential larger rate cuts in response to Mexico's economic deceleration. This slowdown aligns with concerns over Trump's tariff plans, which have also adversely affected the AUD/USD pair. As the global market braces for changes, the release of the U.S. core Personal Consumption Expenditures Price Index is anticipated to provide further insights into economic conditions.
Mexico, China, and Canada collectively represented 42% of total U.S. imports in 2024, underscoring their significant roles in the U.S. economy. Among these, Mexico emerged as the top exporter with a remarkable $466.6 billion in exports in 2024, according to the U.S. Census Bureau. Despite this substantial economic contribution, the Mexican Peso (MXN) remains under pressure due to Trump's reiterated intentions to impose a flat 25% import tax on all goods entering the U.S. from Canada and Mexico. Additionally, Trump has hinted at the possibility of extending tariffs to include Canadian and Mexican oil exports, further straining international trade relations.
The impact of these developments is evident in the currency markets, with renewed U.S. Dollar selling playing a pivotal role in keeping gold prices buoyant. Investors are turning to gold as a safe-haven asset amid uncertainties surrounding tariff implementations and their potential repercussions on global trade.
Meanwhile, economic data from Mexico has exacerbated the Peso's struggles, reinforcing Banxico's likelihood of implementing larger rate cuts to counteract the economic downturn. As Mexico grapples with these challenges, Trump's tariff threats loom large, contributing to an atmosphere of uncertainty that affects currency valuations.
The AUD/USD pair has not been immune to these pressures either. Concerns about Trump's tariff strategies have undermined the pair, compounded by increased bets on a February rate decision by the Reserve Bank of Australia (RBA) and ongoing economic challenges facing China. These factors collectively exert pressure on the Australian Dollar, further complicating its market position.
The U.S. economy is also feeling the effects of these international tensions. The U.S. Department of Commerce recently reported that the Gross Domestic Product Annualized for Q4 fell to 2.3% from 3.1%, missing expectations of 2.6%. This decline reflects broader economic challenges and underscores the potential impact of trade policies on domestic growth.