Heightened trade friction with Washington is having little visible effect on the Canadian dollar for now. Scotiabank's currency strategists say the loonie is trading remarkably close to its underlying economic balance point, even as rhetoric out of the US has sharpened in recent days.
Trump Takes Aim at Bombardier and the Loonie
Donald Trump has targeted Canada in two separate social media posts recently. In one, he floated the idea of a boycott, or possibly an outright ban, on Bombardier jets. In another, he described the currency imbalance between the Canadian dollar and the US dollar as "unacceptable." It remains unclear whether either post will translate into an actual policy action, and that uncertainty appears to be why markets have largely shrugged off the comments so far.
Where Scotiabank Pegs Fair Value
By Scotiabank's estimation, USD/CAD is currently trading close to its fundamental equilibrium. Spot dipped briefly below the 1.38 level in early Asian trade before rebounding slightly. That overnight low effectively lines up with Scotiabank's current fair value estimate of 1.3768, the lowest reading since early June. In other words, there is little daylight left between where the pair is actually trading and where the bank's models say it should be.
A Short-Term Bounce for the Dollar
On the technical side, the US dollar rebounded firmly from its intraday low below 1.38, setting a bullish "hammer" signal on the intraday chart. That kind of pattern typically points to renewed short-term buying interest after a bout of selling pressure, and it could offer the dollar some near-term relief. That's why Scotiabank's latest note describes the outlook as "neutral to bearish": no dramatic reversal is expected immediately, but upside is seen as limited.
The Bigger Picture Still Doesn't Favor the Dollar
Zooming out, though, tells a different story. Price action last week suggests the dollar's rebound from its August 21 low of 1.3733 stalled and reversed on Wednesday. That has established firm resistance in the low to mid 1.39 zone. The implication is that the broader downtrend in the US dollar, which began from its mid-year peak, is now resuming, meaning the recent bounce looks like a pause rather than a genuine change in direction.
Bearish Momentum Signals Reawaken
According to Scotiabank, dollar-bearish trend momentum was close to stalling out last week, but fresh dollar losses have reinvigorated bearish oscillator signals. Practically, that means even modest dollar gains, up through the mid to upper 1.38s, are likely to start attracting fresh selling interest. Every small bounce, in other words, is likely to be treated by the market as an opportunity to sell rather than a genuine turning point.
Levels to Watch Next
Scotiabank places immediate US dollar support at 1.3715 to 1.3735. A break below that zone opens the door to a decline back toward the 1.3500 to 1.3550 region. On the upside, the low to mid 1.39 area stands as firm resistance that the dollar is currently struggling to clear.
