The Canadian Dollar (CAD) has resumed its uptrend against the US Dollar (USD), trading close to its fundamental equilibrium with USD/CAD hovering near fair value around 1.38, according to Scotiabank strategists Shaun Osborne and Eric Theoret [1]. Technical resistance is noted in the low/mid 1.39s, with support near 1.37 guiding near-term trading expectations [1]. The CAD is largely unaffected by recent trade tensions, including President Trump's social media posts suggesting a boycott or ban on Bombardier jets and complaints about the CAD 'imbalance' with the US, though no concrete actions have been taken [1]. Spot dipped briefly below 1.38 in early Asian trade, with the overnight low equating to Scotiabank's fair value estimate of 1.3768, the lowest since early June [1]. Price action suggests the USD downtrend from mid-year peaks is resuming, with firm resistance in the low/mid 1.39 zone [1].
National Bank of Canada (NBC) analysts Marion and Dahms report that the CAD rallied strongly in Q3, rebounding from a 19-month low near 1.42 at the end of June, driven by positive economic surprises and higher Oil and Gold prices [3]. USD/CAD reached as low as 1.377 on August 21 before trade negotiations between Ottawa and Washington broke down, and at the time of writing, USD/CAD is back above 1.38 [3]. The loonie has gained roughly 2.5% against the greenback quarter-to-date [3]. However, new U.S. tariffs and trade uncertainty pose downside risks to Canadian growth, prompting NBC to advise caution before another rate hike [3]. NBC forecasts a near-term USD/CAD rebound toward 1.40 before a renewed move lower toward 1.33 by 2027, assuming favorable trade outcomes [3].
Meanwhile, NBC's Stéfane Marion and Kyle Dahms note that the USD has weakened broadly in Q3, despite the US economy remaining at full employment, with payrolls surging by 162,000 in August, nearly three times the consensus expectation of 55,000, and the unemployment rate holding at 4.1% [4]. Higher long-term Treasury yields have tightened financial conditions, limiting the scope for renewed Fed hikes, and NBC's fixed-income team expects the Federal Reserve to stay on hold this year, keeping the trade-weighted Dollar near recent lows [4]. All major currencies except the Swiss franc have gained ground against the USD in Q3 [4].
Scotiabank also notes that the CAD is shrugging off heightened trade tensions with the US, and the administration's focus on exchange rates may indicate a shift toward more traditional policy levers [1]. NBC highlights that geopolitical risks, such as tensions in the Strait of Hormuz, have kept a risk premium embedded in oil and gold, supporting the CAD [3].
CONCLUSION
The Canadian Dollar has strengthened in Q3, supported by positive economic data and higher commodity prices, while the US Dollar has weakened broadly despite robust US employment figures. Trade tensions and new tariffs pose risks to Canadian growth, prompting analysts to advise caution on rate hikes. Market sentiment remains moderately positive for the CAD, with expectations of further gains if trade negotiations improve.