The Canadian dollar weakened against the greenback on Wednesday as the Bank of Canada cut interest rates to support the economy ahead of expected U.S. trade tariffs, helping to widen the gap between Canadian and U.

The big difference with 2024 is the threat and impact of US tariffs. But the BoC’s chief noted that “Monetary policy cannot offset the economic consequences of a protracted trade conflict.” The challenge for the bank in that scenario though is the inflationary pressure of tariffs.

The Canadian Dollar lost 0.25% against the Greenback on Wednesday. The Bank of Canada cut interest rates by another 25 bps, to 3%. The BoC also announced the end of its quantitative tightening program.

Another headache for the BoC is the swooning loonie, which is down over 6% against the US dollar since September 2024. If the BoC cuts today and the Fed holds, as expected, there will be further downward pressure on the Canadian dollar as the US/Canada rate differential will widen.

The Canadian dollar weakened against the greenback on Wednesday as the Bank of Canada's latest interest rate cut helped widen the gap between Canadian and U.S. bond yields, but the decline was limited ahead of a Federal Reserve policy decision.

The Bank of Canada on Wednesday cut its benchmark rate for a sixth straight time, and warned of a significant shock to the economy from a U.S.-Canada trade conflict with tariffs of up to 25%.

The gap in interest rate policies between Canada and the U.S. widened further as the Bank of Canada cut its key lending rate by a quarter-point on Wednesday, while the U.S. Federal Reserve held rates steady.