The Canadian dollar weakened against the greenback on Wednesday as the Bank of Canada's latest interest rate cut helped widen the gap between Canadian and U.S. bond yields, but the decline was limited ahead of a Federal Reserve policy decision.

The U.S. is Canada’s biggest trading partner and consumes over three-fourths of all its exports. The sell-off in shares and impending trade tensions with the U.S. pushed bond yields down, with the 10-year government bond yield falling 7.5 basis points to 3.189 per cent.

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.