Trump aims tariffs at Canada and China; Mexico escapes and the peso hits a two-year high

Good morning!

Mexico sits out the new tariff round

The day's real driver is political rather than statistical. Trump vowed 50% tariffs on Canadian autos, parts and steel from 2027 and is readying a 7.5% levy on China ahead of next month's summit with Xi (Bloomberg, Aug 24). Mexico, once again, is off the list.

For a currency already trading at its firmest in more than two years, that absence is the whole story. Capital hunting EM carry treats Mexico as the neighbor left out of the fight. Spot sits at 16.9375, up roughly 2.1% on the month; the FIX opened near 16.90.

Crude slides, the long end eases

The biggest move on the tape is in oil: WTI −3.00% to 82.46, even with fresh US sanctions on Iran on the table. When crude falls into a bullish headline, the market is telling you it sees supply rather than scarcity. For Mexico that cuts both ways: less oil revenue, but less imported price pressure too.

Treasuries fit the same softer-growth read. The 10Y slips to 4.67% (−4bp), with US consumer confidence wobbling in the background: the Michigan gauge dropped to 51 from 55.2. A lower US rate only widens the gap the peso feeds on.

Staying long the peso, eyes open

Yesterday's line was a sustained close above 17.16 or a 10Y break of 4.75%. Neither came close, with spot drifting lower and the long end easing, so the pro-peso bias holds untouched.

The uncomfortable part: Chicago specs are net long 79,452 peso contracts, near a two-year extreme, and already trimmed 4,221 last week (COT to Aug 18). A crowded favorite is a fragile one; if tomorrow's PCE surprises, the exit is narrow.

I stay constructive on the peso while 16.88 holds and US 10Y stays below 4.75%. The rolling ceiling eased today to 17.08 from yesterday's 17.16 reference, so the band is tightening. Tomorrow's PCE is the next test; no verdict to hand out today, it's still ahead.

Risk On climbs from 54 to 60, CONSTRUCTIVE: VIX at 15.84, green S&P futures and a contained MOVE near 74 carry the mood, while soft crude and a half-speed carry keep a lid on it.

— See you tomorrow for Wednesday's view.