TORONTO: The Canadian dollar weakened to a one-week low against its U.S. counterpart on Tuesday as the trade war between the United States and Canada heated up, and ahead of an expected interest rate cut by the Bank of Canada.
The loonie was trading 0.3% lower at 1.4475 to the U.S. dollar, or 69.08 U.S. cents, after sharply reversing earlier gains to touch its weakest intraday level since March 4 at 1.4521.
U.S. President Donald Trump doubled his planned tariff to 50% on all steel and aluminum products coming into the United States from Canada, in response to Ontario placing a 25% tariff on electricity exports to the U.S.
“That was definitely the catalyst for the latest move, the ratcheting up of the trade war,” said Erik Nelson, a macro strategist at Wells Fargo Securities in London.
Canada sends about 75% of its exports to the United States and economists say a trade war could push its economy into recession.
Canadian dollar weakens against the greenback
“Reality is catching up with Canadian interest rates. The Bank of Canada is going to have to cut a bit more than the market was pricing,” Nelson said.
Investors have moved in recent days to nearly fully price in a 25-basis-point interest rate cut by the BoC on Wednesday and expect at least two further cuts by the end of 2025. Since June, the central bank has reduced the benchmark rate by two percentage points to support the economy to its current setting of 3%.
The price of oil, one of Canada’s major exports, was trading 1.1% higher at $66.74 a barrel, clawing back much of the previous day’s decline.
Canadian bond yields eased across a steeper curve. The 2-year was down 4.9 basis points at 2.486%, approaching the near three-year low it touched last Tuesday at 2.414%.
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