The Canadian dollar experienced a slight increase against the U.S. dollar on Wednesday, bolstered by a balanced monetary policy statement from the Bank of Canada (BoC). The BoC cut interest rates as anticipated, reducing them by 25 basis points to 2.75%.
However, the central bank did not indicate a readiness for additional easing, which helped stabilize the loonie. Following the announcement, the Canadian dollar was trading 0.2% higher at 1.44 per U.S. dollar, equivalent to 69.44 U.S. cents.
Throughout the day, it fluctuated within a range of 1.4371 to 1.4484. In its statement, the Bank of Canada warned about the potential for “a new crisis” stemming from tariffs imposed by the U.S. government under President Donald Trump.
The BoC expressed caution, opting to evaluate the balance of inflationary pressures from rising costs against the impact of diminished demand before making further rate adjustments. Bipan Rai, who leads ETF and structured solutions at BMO Global Asset Management, noted the central bank’s careful approach, suggesting the statement did not provide new insights regarding the short-term direction of the Canadian dollar.
Market expectations indicate that investors see less than a 50% likelihood of another rate cut by April. This uncertainty is compounded by Trump’s recent increase in tariffs on U.S. steel and aluminum imports, which triggered immediate retaliatory measures from Canada and Europe.
Canada, as the largest foreign supplier of these materials to the U.S., responded with a significant announcement of 25% tariffs on American goods valued at C$29.8 billion. Meanwhile, the price of oil, a key Canadian export, rose for the second consecutive day, climbing 2.2% to $67.70 a barrel.
Additionally, Canadian bond yields increased across the curve, with the 10-year yield gaining 2.2 basis points to reach 3.030%.