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The Canadian dollar slid to a weekly low and local bonds rallied after U.S. President Donald Trump said he would raise steel and aluminum tariffs on Canada to 50 per cent, doubling a planned levy set to take effect on Wednesday.

The loonie fell as much as 0.6 per cent versus the greenback to $1.4521, the currency’s weakest level since March 4. Tuesday’s decline extended the loonie’s losses so far this month — it’s the only Group-of-10 currency to fall against the U.S. dollar in March.

Trump’s on-again, off-again tariff threats risk sparking a recession in Canada. The country’s currency has weakened while traders have been ramping up their dovish bets that the nation’s central bank will on Wednesday ease monetary policy by a quarter point.

Ahead of the Bank of Canada’s meeting and after Trump’s tariff announcement Tuesday, swaps markets wholly priced in a quarter-point cut — up from a coin-toss as recently as the beginning of the month. The yield on Canada’s benchmark 10-year debt fell to 2.94%.

“More of Trump’s tariff threats are adding greater uncertainty for Canadians — especially the steel and aluminum tariffs as we are still unsure what the details will be,” said Sarah Ying, head of FX strategy at CIBC Capital Markets. “We suspect trade uncertainty will be a key driver of the Bank’s decision tomorrow.”

Goldman Sachs Group Inc. economists Megan Peters and Joseph Briggs now expect officials led by Governor Tiff Macklem to ease rates instead of holding steady. The firm’s interest-rate strategists recommend investors hold trades betting on a steeper Canadian yield curve, which would benefit if the central bank front-loads easing.

Those views align with bearish loonie sentiment in the foreign-exchange markets. Derivatives positioning suggests traders are primed for further losses in the Canadian currency, even as the greenback comes off its worst run of losses since 2022.

Speculative traders hold a roughly $10 billion short on Canada’s dollar, according to the latest data released by the Commodity Futures Trading Commission through March 4 and aggregated by Bloomberg. Meanwhile, risk reversals — a measure of options sentiment that gauges the premium investors are willing to pay for calls versus puts — show a bearish loonie stance climbing considerably since the beginning of the year.

“It’s just a constant onslaught of headlines from the White House,” Molly Schwartz, a macro strategist at Cooperatieve Rabobank in New York, said ahead of Trump’s announcements Tuesday. “The Canadian economy will take a real hit should tariffs come to fruition.”

Schwartz and her team expect the BOC to cut rates by 25 basis points on Wednesday and for the benchmark rate to land at 2.50% by year-end. While not Rabobank’s base case, the imposition of broad-based, 25% tariffs on Canada would drag the loonie some 6% lower to C$1.53 per dollar, they wrote Thursday.

With assistance from George Lei and Anya Andrianova.

Carter Johnson and Jade Khatib, Bloomberg News