The Canadian dollar CADUSD recovered from an earlier one-week low against its U.S. counterpart on Tuesday as American and Canadian officials agreed to meet to discuss a trade war that showed signs of heating up, and ahead of an expected interest rate cut by the Bank of Canada.
The loonie was trading 0.2 per cent higher at 1.4410 per U.S. dollar, or 69.40 U.S. cents, after earlier touching its weakest since March 4 at 1.4521.
U.S. President Donald Trump ramped up a burgeoning trade war with Canada, vowing to double tariffs set to take effect within hours on all imported steel and aluminum products from America’s northern neighbour to 50 per cent.
Trump later said he would likely lower them after Ontario Premier Doug Ford agreed to suspend a surcharge on electricity the province supplies to U.S. homes and meet with U.S. Commerce Secretary Howard Lutnick on Thursday. Canada sends about 75 per cent of its exports to the United States, and economists have said a trade war could push its economy into recession.
“Reality is catching up with Canadian interest rates,” said Erik Nelson, a macro strategist at Wells Fargo Securities in London. “The Bank of Canada is going to have to cut a bit more than the market was pricing.”
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 per cent.
The price of oil, one of Canada’s major exports, settled 0.3 per cent higher at $66.25 a barrel, clawing back some of the previous day’s decline.
Canadian bond yields were mixed across a steeper curve. The 10-year was up 2.1 basis points at 3.007 per cent.