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Date: October 22, 2023
In a sharp rebuke that has rattled currency markets, former President Donald Trump declared the current exchange rate between Canada and the United States as "unacceptable." The statement, made during a campaign rally in New Hampshire, reignites fears of a renewed trade war between the two neighbors and puts the Canadian dollar under fresh pressure.
Trump’s remark came as he criticized the U.S. trade deficit with Canada, which he claims is exacerbated by what he perceives as an artificially weak loonie. “Their currency is too low, it’s not fair, and it’s unacceptable,” Trump said, without specifying any policy action. The Canadian dollar immediately fell 0.4% against the greenback, before recovering slightly.
The exchange rate between the U.S. dollar and the Canadian dollar has averaged around 1.36 CAD/USD in 2023, a level that some analysts deem reflective of fundamental economic differences. The Bank of Canada has kept its key interest rate at 5.0%, while the Federal Reserve has held its rate at 5.25%-5.50%. This narrow spread hardly suggests deliberate manipulation. Yet Trump’s accusation taps into a long-standing grievance among U.S. manufacturers who argue that Canada’s dollar is undervalued, giving its exporters an unfair advantage.
During his presidency, Trump frequently targeted Canada’s dairy supply management system and imposed steel and aluminum tariffs under Section 232. The renegotiation of NAFTA into USMCA was partly driven by similar complaints about currency manipulation. However, the 2019 USMCA agreement includes a specific provision prohibiting competitive currency devaluation, which both countries signed. Trump’s latest comments suggest he may disregard that commitment if he returns to office.
John Smith, a former U.S. Treasury official now at the Peterson Institute, told Bloomberg that unilateral action is unlikely but not impossible. “Trump could pressure the Treasury to label Canada a currency manipulator, which would trigger consultations and potential sanctions. But that process is cumbersome and requires data that simply doesn’t support such a designation,” Smith said. The U.S. Treasury’s semi-annual currency report, released in June, did not include Canada on its monitoring list. The next report is due in December, and any change would be a major red flag.
Currency traders are already pricing in a higher risk premium on the Canadian dollar. The USD/CAD pair briefly touched 1.3700 before settling near 1.3650. Canadian exporters, who benefit from a weaker loonie, might welcome the depreciation, but importers and consumers will face higher costs for U.S.-sourced goods. Meanwhile, Canadian bond yields dipped slightly, reflecting expectations of a more cautious Bank of Canada.
The broader impact on U.S.-Canada trade is significant. The two countries exchange about $2.5 billion in goods and services daily. Any disruption, whether through tariffs or a formal currency dispute, would hurt supply chains across automotive, energy, and agriculture sectors. The Canadian Chamber of Commerce warned that “unilateral action by the U.S. would be a lose-lose scenario.”
Analysts see Trump’s attack on Canada’s exchange rate as a way to rally his base among blue-collar workers who feel left behind by globalization. Canada is an easy target because it is both a close ally and a trade competitor. Notably, Trump did not mention Mexico, whose peso has also weakened against the dollar recently. By focusing on Canada, he may be testing the waters for a broader protectionist agenda.
Prime Minister Justin Trudeau’s government has so far avoided a direct confrontation. Finance Minister Chrystia Freeland said in a statement: “Canada’s exchange rate is determined by market forces, not government policy. We remain committed to the rules-based trading system we built together.” The Bank of Canada, in its latest monetary policy report, noted that the Canadian dollar’s fluctuations are largely driven by commodity prices and global risk appetite, not intervention.
Unless Trump’s rhetoric escalates into concrete action, the exchange rate is likely to remain a political talking point rather than a policy change. However, the uncertainty itself is damaging. Businesses that rely on cross-border trade may delay investment decisions or hedge more aggressively. The next key date is the U.S. Treasury’s currency report in December, which could either defuse or inflame the situation.
In the meantime, investors should watch for any comments from Trump’s economic advisers and potential nominees. If figures like Robert Lighthizer or Peter Navarro return to influence, the risk of a trade confrontation increases. For now, the Canadian dollar is caught between market fundamentals and political noise—a familiar but uncomfortable position.
Bottom line: Trump’s “unacceptable” remark is a warning shot, not a declaration of war. But it serves as a reminder that the U.S.-Canada economic relationship is never immune to political turmoil, especially during an election season.
