US dollar surges against loonie on tariff announcement, euro gains

[NEW YORK] The US dollar surged against its Canadian counterpart on Tuesday after the United States imposed duties on Canadian softwood, while the euro hit a multi-month high on relief over the French election and the possibility of more hawkish European Central Bank policy in June.

The greenback hit C$1.3626, its highest level against the loonie since late Feb 2016. US commerce secretary Wilbur Ross said Monday the United States will impose preliminary anti-subsidy duties averaging 20 per cent on imports of softwood lumber.

The move, which affects some US$5.66 billion worth of imports of the construction material, set a tense tone as the two countries and Mexico prepare to renegotiate the 23-year-old North American Free Trade Agreement.

"It reflects what is going to happen with the trade relationships for the US and its neighbor," said Sireen Harajli, FX strategist at Mizuho in New York.

"This is a negative reflection on that trade relationship."

The euro hit US$1.0950, its highest level against the US dollar in five and a half months, as traders digested centrist candidate Emmanuel Macron's victory in the first round of France's presidential election on Sunday.

"What we're seeing is the beginning of a longer march" higher in the euro in response to Mr Macron's first-round victory, said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.

In addition, three sources on and close to the ECB's Governing Council told Reuters that with the fading of the threat of a run-off between two eurosceptic candidates in France, and with the economy on its best run in years, many rate setters see scope for sending a small signal in June towards reducing monetary stimulus.

Ms Harajli of Mizuho said more hawkish ECB policy would drive interest rates higher in Europe, which would likely boost the euro.

The US dollar surged about 1.3 per cent against the safe-haven yen to a 15-day high of 111.18 yen. The reduced French election concerns, combined with strong new US home sales data and optimism surrounding an expected tax reform announcement from US President Donald Trump's administration on Wednesday boosted the US dollar against the yen.

"If tomorrow's tax plan is seen as credible by the market, then dollar/yen could go higher," Mr Jalinoos of Credit Suisse said.

The US dollar index, which measures the greenback against a basket of six major rivals, was last down 0.3 per cent at 98.844 after touching its lowest level in five and a half months, of 98.695.

REUTERS