TORONTO, Jan 20 (Reuters) - The Canadian dollar strengthened to a near 5-week high against its U.S. counterpart on Monday as the prospect of U.S. trade tariffs grew less imminent and a Bank of Canada survey showed that firms are beginning to anticipate improved activity.
The loonie was trading 1.1% higher at 1.4325 per U.S. dollar, or 69.81 U.S. cents, after touching its strongest intraday level since Dec. 17 at 1.4262.
Donald Trump will issue a broad trade memo that stops short of imposing new tariffs on his first day in office but directs federal agencies to evaluate U.S. trade relationships with China, Canada and Mexico, an official said.
The U.S. president-elect had threatened an immediate 25% tax on imports from Canada and Mexico. Earlier on Monday, the loonie touched its weakest level since March 2020 at 1.4485.
"Financial markets are staging an across-the-board relief rally," Karl Schamotta, chief market strategist at Corpay, said in a note. "Gains could accelerate somewhat ahead of tomorrow's U.S. equity market open, but the ride will remain bumpy as major unknowns remain around the incoming administration's policy direction."
Canadian firms see improved demand and sales in the coming year but are concerned about the potential damage from promised U.S. policies, the Bank of Canada said in its Business Outlook Survey.
"With inflation expectations normalizing, the door is open for the Bank of Canada to keep lowering rates in an attempt to push the unemployment rate down and absorb economic slack," Royce Mendes, head of macro strategy at Desjardins, said in a note.
Investors see a roughly 75% chance the BoC will cut its benchmark interest rate by 25 basis points to 3% at a policy decision on Jan. 29.
The Canadian 10-year yield was down 1.3 basis points at 3.284%.
Reporting by Fergal Smith; Editing by Daniel Wallis