April 25, 2017 / 3:21 PM / 4 months ago

FOREX-Dollar surges against loonie on tariff announcement, yen sinks

(Updates prices, adds comments; changes byline, dateline, pvs LONDON)

* Dollar hits highest vs loonie since Feb. '16

* Euro rises to just below 5-1/2-month high

* Dollar jumps about 1 pct to 2-week high vs yen

* Reuters report on potential ECB plans boosts euro

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Sam Forgione

NEW YORK, April 25 (Reuters) - The U.S. dollar surged to its highest level against its Canadian counterpart in more than a year on Tuesday after the United States imposed duties on Canadian softwood, while the dollar hit a two-week high against the yen on greater risk appetite.

The greenback hit C$1.3615, its highest level against the loonie since late Feb. 2016. U.S. Commerce Secretary Wilbur Ross said Monday the United States will impose preliminary anti-subsidy duties averaging 20 percent on imports of the softwood lumber.

The move, which affects some $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 U.S. and its neighbor," said Sireen Harajli, FX strategist at Mizuho in New York. "This is a negative reflection on that trade relationship."

The dollar surged about 1 percent against the yen to a two-week high of 110.84 yen as traders abandoned the safe-haven currency on relief over centrist candidate Emmanuel Macron's victory in the first round of Sunday's election in France.

Data showing a surge in new U.S. home sales to an eight-month high last month also suggested underlying strength in the economy despite an apparent sharp slowdown in growth in the first quarter, boosting the dollar against the yen.

Analysts also said anticipation that U.S. President Donald Trump's administration will make an announcement on tax reform this week boosted the dollar against the yen.

"Between the France election and the prospects of corporate tax cuts being proposed in the next few days, it’s clearly a risk-on backdrop," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Group Ltd in New York.

The euro hit $1.0932, just under Monday's 5-1/2-month high of $1.0935. Three sources on and close to the European Central Bank's Governing Council told Reuters that with the threat of a run-off between two eurosceptic candidates in France averted, 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.

The prospect of reduced ECB monetary stimulus suggested higher European interest rates and a higher euro, Harajli of Mizuho said.

The dollar index, which measures the greenback against a basket of six major rivals, was last down 0.3 percent at 98.838.

Reporting by Sam Forgione; additional reporting by Jemima Kelly in London; Editing by Nick Zieminski

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