BUZZ-COMMENT-Canadian dollar gets a double boost

Jan 6 (Reuters) - The Canadian dollar received a double dose of positives this morning with a report that Canadian Prime Minister Justin Trudeau is likely to resign before the Jan. 8 national caucus meeting and news that U.S. President-elect Donald Trump is mulling a less aggressive tariff plan.

USD/CAD has since broken out of its post-Fed range – 1.4330-1.4475 – to trade at the low 1.43s, though it is perhaps too soon to suggest this is a turning point for the pair.

Reports that Trudeau is likely to resign should come as little surprise. Since Finance Minister Chrystia Freeland stepped down in December it was only a question of when Trudeau would follow. The next steps will for an interim leader to take over as PM while the party sets up a special leadership convention.

What matters for the Canadian dollar, however, will be when an election is called. As it stands, opinion polls project Conservatives to win by a sizeable margin, which given their policies of cutting taxes, deregulation and likely closer ties to the Trump administration would be a positive for the Loonie.

In the short run, the bigger focus for the currency is on tariffs, which according to the Washington Post may be less hawkish than initially feared. Trump aides are said to be working on a plan to impose tariffs on every country but focus on only critical imports, which is a step down from Trump’s pre-election stance for tariffs on all imports. It is worth noting, however, that no additional details were given on the proposed 25% tariffs on Canadian goods.

While the dollar has sold off on reports of a less aggressive tariff plan, the market reaction emphasises that headline risk will remain elevated leading into the U.S. inauguration. There is also the risk of conflicting reports from other newswires and the potential for headline ping pong suggests traders be remain nimble.

Should a less aggressive tariff plan be confirmed, the door is likely open for USD/CAD to test 1.40

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(Justin McQueen is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond)

((justin.mcqueen@thomsonreuters.com))