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 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 BoC cut interest rates by a further 25 basis points to 3.00%, which was in line with consensus forecasts. The Bank is also announcing its plan to end bond selling through quantitative tightening.

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.