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.

Bank of Canada Governor Tiff Macklem said late Wednesday that the central bank can’t repair the economic damage of a trade war with the US, but he will do his best to make it less painful, per Bloomberg.

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.