04:48 PM EDT, 03/12/2025 (MT Newswires) -- (Adds commentary on Canada possibly restricting oil exports in paragraphs. three and four.)

The Toronto Stock Exchange on Wednesday recouped about a third of more than 500 points lost over the previous two sessions, as the Bank of Canada, as expected, lowered interest rates again, while investors appeared happy with the latest steps that Canada has taken to defend itself in the face of threats to its economy and sovereignty from the United States.

The S&P/TSX Composite Index closed up 175.14 points at 24,423.34. Among sectors, Energy, up 1.7%, and Information Technology, up 1.28%, were higher, while Telecoms, down 1.23%, was the biggest decliner.

Late afternoon, Reuters cited Canada's energy minister Jonathan Wilkinson saying he could impose non-tariff measures such as restricting oil exports to the United States or levy export duties on products if a trade dispute with the U.S. escalates further. "When we are talking about non-tariff retaliation, it could be about restricting supply, it could be putting our own export duties on products. It could be energy and minerals, it could be broader than that," Wilkinson said in an interview with Reuters.

According to the report, Wilkinson also raised the possibility of using non-tariff measures on critical minerals, which could force the United States to rely even more heavily on China. "Everything is on the table," he said. Canada is the top supplier of imported oil to the United States., providing around 4-million barrels per day mainly to refineries in the Midwest that depend on heavy crudes from the oil sands.

Today, the Bank of Canada cut its key benchmark interest rate by another 25 basis points to 2.75%, the middle of the estimated 'neutral' range, as Governor Tiff Macklem warned Canada is "facing a new crisis," and that the central bank cannot offset the impacts of a trade war.. This was the central bank's seventh-consecutive cut, bringing the total drop in the overnight rate since early June last year to 225 basis points.

Meanwhile, Canada unveiled another $30 billion in retaliatory tariffs ahead of a high stakes meeting involving officials from both nations in Washington tomorrow. The new Canadian tariffs, which follow $30 billion of levies imposed earlier this month, were rolled out after U.S. President Donald Trump imposed 25% import levies on steel and aluminum from all countries, including Canada.

On rates, RBC said its own base case has assumed further BoC cuts to a 2.25% around mid-year. It continues to expect, consistent with BoC communications today, that there "won't be a race to the bottom" for rates beyond those previously expected cuts this year.

National Bank said prior to today's BoC decision, its baseline expectation for the rate path was for successive 25 basis point cuts, bringing the overnight target to 2% by the summer. But, it added, the BoC's evolving view on inflation suggests the bar to rapid rate relief is "somewhat" higher than it had thought.

"That means data dependence will be more important as the Bank won't simply cut in anticipation of economic weakness. Nonetheless, we expect economic damage to rack up over coming months and against that backdrop, it could be difficult for the BoC to stand on the sidelines. That's especially true if you believe their earlier analysis that shows the near-term negative growth impacts of a trade war are disproportionally larger than near-term inflation pressures. We'd therefore brace for another cut in April, although incoming data will be key. If inflation surprises higher and GDP/job growth holds up okay, we'd likely see the Bank leave rates steady for the first time in a year," National Bank noted.

David Doyle, head of economics at Macquarie, noted his team updated its Canada forecast this week as part a Global Economic Outlook Update. Due to trade policy uncertainty, Macquarie is now forecasting a contraction in real GDP of 0.3% in 2025, with weakness concentrated in the second and third quarters. From the BoC, Macquarie expects three further successive cuts of 25 bps ahead, with the overnight rate reaching 2.0% in July. "Risks to this call remain for more aggressive further easing," Doyle said.

On commodities today, West Texas Intermediate crude oil closed higher, rising again from a six-month low touched Monday following a report showing U.S. inventories less than expected last week. WTI oil closed up $1.43 to settle at US$67.68 per barrel. while May Brent crude was up $1.36 to US$70.92.

Also, gold traded higher mid-afternoon on Wednesday after a report showed U.S consumer prices advanced less than expected last month, while safe-haven buying continues amid fresh U.S. tariffs on aluminum and steel. Gold for April delivery was last seen up $26.00 to US$2.946.90 per ounce.

On the U.S. data, Macquarie's David Doyle, noted CPI for February showed a deceleration after a strong January reading, with a sharp decline in airfare prices partly responsible. The core measure was up 0.23% month over month. "Encouragingly", he said, year-over-year it decelerated to +3.1%, its lowest level since April 2021.

However, Doyle said, even with the more favorable monthly reading, there has been a stalling in the disinflation process in recent months. The three-month average of core CPI still stands at up 0.29%, a 3.6% annualized pace. Macquarie suspects the core PCE reading may be slightly firmer in February, although it said the final result will hinge on the inputs from core PPI due tomorrow. It expects core inflation to "remain somewhat elevated" and show limited further YoY disinflation ahead. Core goods (and tariffs) represent an upside risk to the outlook, Doyle added.