The Canadian dollar firmed on Tuesday around its five-month high as investors turned their attention to a BOC interest rate decision this week.

Growing recession risks from the US-led trade war will push policymakers to cut interest rates at least twice more this year, according to a Reuters poll, although they are expected to stand pat on Wednesday.

Speculators have reduced their bearish bets on the Canadian dollar to the lowest since October, CFTC data showed on Friday, ass the continued weakness of the greenback rattled loonie bears.

Last week Canada says it has started imposing a 25% tariff on certain vehicle imports from the US. Trump’s car tariffs are particularly painful for Canada, whose car industry is entwined with that of its neighbour.

The country’s manufacturing activity contracted at a steeper rate in March as a widening global trade war triggered the sharpest decline in new orders since shortly after the start of the COVID-19 crisis.

Trade unexpectedly flipped to a deficit in February but both exports and imports stayed at near record levels. Exports of energy products posted the first decrease since September 2024.

RSI suggests the Canadian dollar has flirted with the overbought territory, which is at odds with plunging oil prices. As such a push lower towards 1.3930 per dollar seems likely.

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