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.

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%.

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 its own rate.

Another headache for the BoC is the swooning loonie, which is down over 6% against the US dollar since September 2024. If the BoC cuts today and the Fed holds, as expected, there will be further downward pressure on the Canadian dollar as the US/Canada rate differential will widen.