Canadian dollar dips on US trade tariff risk #CanadaFinance

By Fergal Smith

(Reuters) – The Canadian dollar edged lower against its U.S. counterpart on Tuesday ahead of an expected interest rate cut by the Bank of Canada and as the threat of U.S. trade tariffs drew renewed focus, leading to broad-based gains for the American currency.

The loonie was trading 0.2% lower at 1.4395 per U.S. dollar, or 69.47 U.S. cents, after moving in a range of 1.4369 to 1.4420. Last Tuesday, the currency touched a near five-year low at 1.4515.

“The loonie continues to trade in limbo, awaiting the crystallization of US tariff risks,” said Nick Rees, senior FX market analyst at Monex Europe Ltd.

The U.S. dollar rallied against a basket of major currencies after U.S. President Donald Trump said on Monday he planned to impose tariffs on computer chips, pharmaceuticals and steel, aiming to persuade producers to make them in the United States. Trump has flagged possible 25% duties on imports from Canada and Mexico on Feb. 1.

“We continue to think that the president will follow through on his tariff threats, which should see a sharp loonie selloff come Monday,” Rees said.

The Bank of Canada is expected on Wednesday to offer an analysis on the impact of potential U.S. tariffs on the Canadian economy and to cut its benchmark interest rate by 25 basis points to 3%.

That would likely widen the gap between Canadian and U.S. interest rates. The Federal Reserve is expected to leave its key rate steady in the 4.25% to 4.50% range on Wednesday.

The price of oil, one of Canada’s major exports, rose 0.1% to $73.25 a barrel but was holding near a multi-week low hit on Monday.

Canadian bond yields moved higher across a steeper curve, tracking moves in U.S. Treasuries. The 10-year was up 3.2 basis points at 3.230%.

(Reporting by Fergal Smith; Editing by Chris Reese)