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 central bank lowered its benchmark interest rate by a supersized half-percentage point in both October and December as inflation hovered at or below its two per cent target, but governor Tiff Macklem said last month the bank would likely slow the pace of cuts going forward.

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 USD/CAD hit a six-day high of 1.4470 after the Bank of Canada (BoC) cut rates by 25 basis points from 3.25% to 3%, as economists widely expected. However, as market participants digest the BoC’s monetary policy statement, the pair has retraced toward 1.4430, yet it remains up 0.29%.

OTTAWA — The potential for U.S. tariffs is clouding the economic outlook for the Bank of Canada as it delivered another interest rate cut, reducing its policy rate by a quarter-percentage point to three per cent.