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Softwood import tariffs harden dollar

Donald Trump has not been making the dollar great again, which is either “sad” or “really tremendous”, depending on his mood for the day. A bit of Canada bashing is one way to fire it back up.

Since the US president’s banner healthcare reform was wrecked on the rocks of reality, investors have grown wary over the broader “Trump trade”, figuring that tax reform may also prove difficult. The dollar index, a measure of its strength against a basket of major currencies, peaked at nearly 104 in January, but has now dropped back to 99, close to erasing the rally since the presidential election. That may or may not suit the famously fickle president, who bragged last month that the boundless confidence he inspires in markets has made the buck a little too strong.

But now, the soft dollar stance is compromised by, of all things, wood and milk. The US currency has this week leapt higher against Canadian dollar after US trade officials upped the ante on softwood imports. The US is threatening tariffs on imports of the Canadian wood of up to 24 per cent — a move described by Canada as “unfair and punitive”.

It is, of course, often tough to know how seriously to take team Trump. But on Canada, markets are taking the bait: the US currency is now at its strongest point against the Canadian currency since the start of 2016. The Mexican peso, which has enjoyed a storming recovery since the immediate shock of Trump’s election, has also pulled back markedly this week, catching the bug from this new pressure on the trade bloc knitting the three countries together. The buck could be set for further gains elsewhere too. Trump tweeted on Tuesday that Canada “has made business for our dairy farmers . . . very difficult. We will not stand for this. Watch!” This is also an issue for New Zealand — dubbed “the Saudi Arabia of milk” for its enormous presence in this market. Hence a fall of more than 1 per cent for the Kiwi dollar so far this week.

All this is unlikely to be enough to turn the broad dollar index around, especially with the euro on a Macron-smitten rally and the pound out of crisis mode. But it is a reminder that squeezing trade can always be relied on to give the greenback some juice.

katie.martin@ft.com