Scotiabank finds little evidence the Canadian Dollar is misaligned, despite Trump’s complaint about a currency “imbalance”.
The US Dollar to Canadian Dollar (USD/CAD) exchange rate edged lower to 1.3774 on Wednesday, extending two days of losses as rising oil prices supported the Loonie despite escalating trade tensions.
At the time of writing, USD/CAD was down 0.03%, following declines of 0.23% on Monday and 0.20% on Tuesday.
Scotiabank’s valuation model puts the pair close to its estimated equilibrium of 1.3756, offering little support for President Trump’s suggestion that Canada’s currency is out of line.
“Nor is there any indication whatsoever that the CAD is significantly out of line with underlying fundamentals.”
The model incorporates short-term US-Canada interest-rate differentials, commodity prices, equities and the broader US Dollar.
Its estimate describes fair value under those conditions, rather than a dated exchange-rate target.
Trump’s wording leaves room for doubt
Trump’s weekend post complained that Canada’s currency “Dollar imbalance with the US is unacceptable”, as the countries prepared another round of retaliatory trade measures.
Scotiabank said even its own desk had differing interpretations of the message.
The reference to currency was explicit, but “imbalance” sounded more like a complaint about trade.
“The post reads more as a grievance than a complaint about misalignment but it does elevate the CAD as a potential source of friction between Washington and Ottawa moving forward.”
The bank sees no obvious grounds for treating Canada as a currency manipulator, citing its trade and current-account position and history of allowing the currency to float.
The Bank of Canada explains that the Canadian Dollar has no fixed value against another currency or gold.
Oil prices have helped the Canadian Dollar withstand the trade headlines, with WTI’s surge beyond $90 lifting the price of a major Canadian export.
Scotiabank interprets Trump’s comment as “political signalling rather than a clear currency policy shift”, while warning that deliberately weakening the US Dollar could disrupt capital flows and complicate the Fed’s inflation fight.
We think any follow-up from the US Treasury deserves particular attention, especially if Washington begins making specific demands about the Canadian Dollar.
Scotiabank itself argues that Treasury Secretary Scott Bessent would be more likely to raise the issue if the administration were seriously targeting Canada’s exchange rate.
Our currency coverage draws on live market data, official economic releases and published bank research.
