An in-depth look at the U.S. dollar

Bannon Kopko: Good morning, everyone.

My name is Bannon Kopko, and I’m one of the veterans on Scotia’s equity sales and trading desk. And it’s my pleasure today to host our multi-asset Research team call discussing the outlook for the all-important U.S. dollar. The greenback. Spoiler alert: they do expect further weakness ahead. This is multi-asset teamwork, so meaning we’ve got a number of minds from different disciplines doing work on why and also how this can affect not only investments but how we should invest around it. This is the third in our series of multi-asset reports. The first was on Chile, the second on Mexico, and we do expect more ahead.

Today we’re going to be joined by our economist René Lalonde, FX strategist Shaun Osborne, and portfolio strategist Hugo Ste-Marie. Our speakers will discuss a number of ways to invest in this theme. We’ll kick it off with our economist, René Lalonde.

Good morning, René.

René Lalonde: Good morning.

Today I’m going to share a small presentation. So, the short presentation will be on the links between the U.S. fiscal deficit, the 10-year government bond yield of the U.S., obviously, and the U.S. effective exchange rate. What I’m going to show is going to—I’m going to show some alternative paths for the exchange rate and the 10-year yield going forward that will depend on, for instance, the stance of the U.S. deficit or the assumption about the U.S. deficit going forward. So different deficits will imply different dollar and different interest rate.

Since the start of the year, the U.S. dollar has come under increasing pressure. And we are also forecasting an expected fall of the U.S. policy rate from the 4.5 to 3% at the beginning of next year, which will also affect the exchange rate, obviously. And, like I said, the widening deficits and the package that was introduced recently, for instance, and the mounting public debt will also weigh on the U.S. effective exchange rate going forward and will also affect the 10-year bond rate. There’s also a somewhat implied preference for a weaker dollar by the current administration. This is also affecting somewhat the path of the exchange rate going forward. These factors represent significant headwinds for the U.S. dollar.

Although more recently the U.S. dollar shows some strength, there could be many factors behind that, but we identify two factors that are mostly probably the biggest ones. As the tariff has been announced and defined, the uncertainty, the trade uncertainty, so the uncertainty about what will be the tariff, is actually falling recently; some variables are showing that. This is reducing a bit the uncertainty and stimulating a bit the U.S. dollar. And there’s also substantial AI investments that are feeding the U.S., which support the exchange rate.

We are expecting that eventually the factors listed on the previous slides will dominate, and the depreciation of the U.S. dollar will resume. It’s very important to note, though, that the timing of the adjustment is uncertain. The depreciation might be limited in the near term, but structurally higher deficits are likely to weigh on the dollar as the horizon extends. So, it’s more a mid-run and long-run factors, talking about the fiscal stance. But there’s also other factors, like I said, that are putting some weight on the U.S. dollar.

So, what I’m going to show is that, using our Canada–U.S. macroeconomic model—so it’s an integrated model: Canada–U.S.—we generate different paths for the U.S. dollar and the U.S. 10-year bond rate going forward. Those are forecasts. So, they take into account many factors, not just a fiscal stance, but we’re going to show different paths going forward that correspond to different assumptions about the U.S. fiscal deficit–to-GDP ratio in the forecasting horizon. In a nutshell, I could give you the result. Our base case calls for an additional 2.6% to 3.6% depreciation of the U.S. dollar by the end of 2026—not so much in 2025, but a bit—and further depreciation over the long run. So, an additional 4% roughly speaking in the long run relative to the 3.6% at the end of 2026. But, you know, there’s uncertainty around that path, and I will show you some alternative paths, as well.

In the chart on the left, you see different assumptions going forward for the fiscal deficit to GDP ratio. Our base case is the red line, so about 6.8% deficit, and we’re holding it for a few years just for the sake of illustration. And we also show some alternative paths where the deficit is larger, the two kind of bluish lines below and one that the deficit is smaller, perhaps because of tariff income going to the government. As you see on the right-hand side, you see the chart starting Q1. So, you see the depreciation that happened at the start of the year, but you see that different fiscal stances—fiscal deficit assumptions going forward—imply different paths for the exchange rate. And the red line is kind of the base case. And, as you see, if we assume larger deficits, we get a larger depreciation of the U.S. currency. And obviously the opposite is true for the green line.

Notice that, at the start of the forecast, there’s not much depreciation and the deficit acts mostly on the long-run and the mid-run forecast. So, there’s a secular tendency to depreciation induced by the fiscal stance. So, you see that like I said, relative to Q2, so the second quarter of 2025, the depreciation of red line is about 3.5% by the end of 2026, and around a bit more than 7% in the long run. And obviously you could reach a higher depreciation with a higher deficit. There’s also an effect on the 10-year bond rate because it’s increasing the risk. As the deficit assumption increases, the outcome on the long-run rate is obviously higher—the two blue lines—and the base case is the red line.

Obviously other factors affect the forecast over the 10 years, but here I’m just changing the assumption about the fiscal stance. So, it’s affecting both variables. It shows that the expected depreciation depends on the size of the fiscal deficit that we’re assuming going forward, but it also depends on the sensitivity of both the exchange rate and the 10-year rate to fluctuation of the fiscal deficit. The next slide is showing that. The red line is the base case that I showed in the previous slide. The dashed line is what happens if we assume the highest sensitivity that the model allows for given the statistics, allows for the sensitivity of the exchange rate and the 10-year rate to fluctuation of the deficit. So obviously if we assume higher sensitivity of these two variables to the deficit, we get a bigger depreciation: around 10% in the long run, and we could also get the 10-year rate going to 5%. But I want to emphasize that this is an extreme scenario. It’s if we assume the upper bound of the sensitivity of those two variables to the deficit. So, it is not a probable scenario; it’s a low-probability scenario, but it shows that the outcome depends on the size of the fiscal deficit you’re assuming, but also on the sensitivity of the two variables that we’re looking at to fluctuation of the deficit.

So, just to conclude: our base case calls for an additional 2.6 to 3.6% depreciation of the U.S. dollar by the end of 2026 and a further depreciation over the longer run, which adds another 4ish percent. The timing of this depreciation is uncertain. After all, what we’re forecasting is the exchange rate, which is a very difficult variable to forecast, way more difficult than inflation for instance. So, the size of the depreciation—like I showed in the different charts—and the future path of the government bond yields depends on the future scenario for U.S. government deficits, because it’s implying more risk, sovereign risk and risk; it depends on the size of what you assume for the deficit going forward. And, like I said, it also depends on the sensitivity of the exchange rate and the 10-year bond rate to fluctuation of the deficit.

So that concludes my presentation. I’ll be happy to take questions at the end of all the presentations. So now I give the floor, so to speak, to Shaun to discuss about the exchange rate and many more things.

Shaun Osborne: Great. Thanks René.

So, René’s opening remarks highlighted a number of challenges for the dollar beyond his focus on the implications of weak fiscal policy that forms the body of this report. The dollar has already weakened quite significantly this year as René mentioned, and our message is firmly geared towards the idea that fiscal policy and other considerations are going to keep the U.S. dollar on a weakening path in the medium term.

So perhaps, first, just before I get going, a brief recap: the first half of the year did see or reflect a very weak performance in the U.S. dollar, quite exceptionally so. Price action in the first six months of the year saw total losses of around about 11%. So that was the worst start for the dollar index since the 1970s. And, also, the cumulative losses over that six-month period were the worst for the dollar index since 2017. To see anything worse, you have to go back to the early 2000s. And the fact that we’d already seen a large drop in the dollar index reflects the recent headwinds that René touched on in his opening comments, and, while the slide in the dollars has already been quite significant, I don’t think that necessarily means that all the bad news is priced in at this point.

Our section of the report highlights some of the factors that we in the FX strategy team think will add to the weakening pressure on the U.S. dollar in the coming quarters. We’ve taken a cautious approach on the dollar for quite some time, mainly because the overall rally in the dollar from its low point following the 2008 financial crisis has looked quite overextended in terms of duration and scale. Our section of the report highlights the fact that prior to 2008 in the post–Bretton Woods history of the dollar has been characterized by these quite regular bullish and bearish cycles, which have typically lasted around about eight years, almost precisely so. But the most recent bull phase in the dollar was nearly double that, and some adjustment in dollar strength seems well overdue as a result.

History also suggests that the long-term gains in the dollar are typically driven by cyclical strength, as to say relatively superior growth and/or interest rates as we saw in the early to mid-1980s. We saw that again in the 1990s and in the post–financial crisis period where those factors were certainly key to supporting significant bouts of, or phases of, dollar strength. Weak dollar phases, on the other hand, have generally reflected structural problems, for example the rising trade deficit in the mid- to late eighties and the twin deficit concerns that arose under George W. Bush’s presidential tenure. So, René’s research indicates that we are tilting towards the idea that structural concerns are emerging as a significant driver of potential dollar weakness once again.

Synched to this last lengthy bull run in the dollar is the extent of the dollar gains against the major currencies that have accumulated over this period. Earlier this year, for example, not that long ago, the euro was trading a little more than a penny above parity, the lowest since the early 2000s. Dollar-to-yen recent peaks around 160 represented the highest point in the dollar since the 1990s. And, of course, the Canadian dollar has been battered back to levels below 145 against the U.S. dollar. These levels have typically marked the low point for the Canadian dollar, certainly in relatively recent history.

The broader bull run in the dollar index took the DXY to two standard deviations above its 20-year moving average in 2022, with the index closing in again on that point earlier this year. Over the last 35 years or so, the two sigma deviation from the long-run moving average or at least close to it has signalled significant troughs in the dollar cycles in 1990s and around the great financial crisis, as well as the peak in the last bull market run in the dollar in the early 2000s. So, in short, the dollar has looked significantly overvalued against its major currency peers and some further adjustment, notwithstanding the roughly 10% or so decline we’ve seen in the dollar this year, still looks quite appropriate. And I think in this context, it’s worth reiterating René’s point about implicit preference for a weaker dollar in the U.S. as the administration pursues a much more mercantilist trade policy at the moment.

Our micro forecast anticipates some slowing in U.S. growth and the potential for quite significant declines in the U.S. policy rate in the coming year. Slower growth and lower short-term rates have typically represented the biggest challenges for the U.S. dollar in previous bear cycles, and we expect a similar impact on the dollar in 2026. The erosion of U.S. exceptionalism is a narrative around the dollar [and] will add to downward pressure on the currency going forward, we believe.

Formal forecasts—so that’s outside of the conclusions of René’s presentations—imply a roughly 6% drop in the DXY through the end of 2026 from current levels. We’re not necessarily picking winners and losers in this move, but we have previously noted that there is potential, we think, for the yen to outperform from very weak levels, reflecting a gradual normalization of Bank of Japan monetary policy as higher interest rates in Japan that will run counter to the significant U.S. policies that we expect in the U.S.

A final point is perhaps to stress that, while a 6% drop in the dollar index over a multi-quarter horizon may not sound particularly earth shattering, but this report is highlighting some significant economic fundamental challenges for the U.S. and the U.S. dollar moving forward. Markets typically do a poor job of pricing in large fundamental risks until they become central to the narrative, and then things do tend to move very quickly. Our charts highlight the fact that FX markets tend to trend over multi-year periods and the U.S. dollar remains relatively elevated. We should not underestimate the potential for currency moves to extend more quickly, or even a lot further, than forecasts imply over the medium term.

And just to reiterate that point, I’d like to—just as a final concluding point here—highlight the fact that the last four cycles in the dollar index have averaged gains or losses from peak to trough or vice versa in the index, averaging around 50% over the last 30 or 40 years.

So, with that, I’ll pass on to Hugo for the portfolio strategy perspective on what the outlook for a weaker dollar means for the equity market outlook. Hugo.

Hugo Ste-Marie: Thank you very much, Shaun.

On my end, as Shaun pointed out, around the equity strategy team, so from an equity standpoint, I think a much weaker dollar should have visible impact on four key points: regional equity performance, on commodities, on earnings, and some sectors as well. I’ll just put a bit of more meat about those key points.

Number one, in terms of regional allocation, usually a weaker U.S. dollar strengthens the case for diversification outside the U.S. I’ll give you some perspective. The S&P 500 is up something close to 10% year-to-date in local currency. But for European investors, the S&P 500 is down 2% in euros due to the 13% gain or appreciation in the euro. For Japanese investors, the S&P is up a modest 3% in yen terms. For Canadian investors, the S&P is up about 6% because of the CAD has appreciated. So, again, the currency movements impact returns for sure. Our work shows that periods of weaker dollar have usually been accompanied by U.S. stocks underperforming their international peers. From that point of view, we like an unhedged exposure to international equities, and the weaker U.S. dollar is one of the key factors, I would say, supporting our rest of the world over U.S. equity preference. That’s not the only factor driving that call, but that’s a key one for sure.

On point number two, regarding commodities, as commodity prices tend to be priced in U.S. dollar terms. So obviously when the U.S. dollar goes down, commodities tend to be more affordable around the world, which is usually boosting demand and prices by extension. So, with all commodities that tend to have or exhibit negative correlation with the U.S. dollar, gold is certainly the one that sports the most—I would say most—steady and most negative correlation with the U.S. dollar. In the current context, given elevated uncertainty, probably a much weaker dollar down the road, I think gold could be the one that benefits the most in the current cycle. You may say that gold has already gained a lot of ground; it’s up probably 40% year-to-date. But that being said, we still expect more upside potential if we see uncertainty stay elevated and the U.S. dollar probably depreciating even more in coming months and quarters. Our preference in the commodity world, as I mentioned, is for gold over oil. I think oil could also benefit from a weaker dollar. But that being said, I think the oil market is certainly a bit more oversupplied, so we may have probably a lower impact there. So, we would favour gold, as we speak.

Switching gears, when we look at currencies, they tend to have some impact on earnings. We see some sensitivity there. I’ll start with the S&P 500. When you break down revenues for the S&P 500 between revenues generated by the domestic economy versus revenues generated outside the U.S., you have about 40% of S&P revenues that are generated outside the U.S. So that’s large businesses or international businesses having exposure to Europe, could be Asia, around the world. So, 40% of U.S. revenues for the S&P are generated outside the U.S. So, when the U.S. dollar is going down, that tends to have a positive impact on S&P 500 earnings. Based on our top-down earnings model, we estimate that a 10% decline in the trade-weighted dollar index tends to boost S&P EPS by ballpark 1 to 2% when all else is equal. You may say that’s not much. Well, you have to keep in mind that, again, it’s not all companies that will benefit from a weaker USD. Some may be penalized by a weaker USD; some have not much foreign exposure. For all those reasons, the impact tends to be small, but the impact is nonetheless positive on S&P 500 earnings. So that’s what you have to, I guess, keep in mind.

When we look at the TSX, here it’s a bit more complicated I would say. Scotia Economics forecasts a much weaker USD, but by reversion they forecast a much stronger Canadian dollar going forward. When we use, again, our top down-earnings model—so it’s a regression analysis based on several factors— all else equal, I would say a 10% appreciation in the Canadian dollar versus the USD tends to have like a 4% negative impact on TSX earnings. Again, I stress the point: you have to keep all else equal, but in real life all else is not equal. What I mentioned a minute ago is when the U.S. dollar goes down, usually commodity prices tend to go up. So, in real life if we have a sustained depreciation in the U.S. dollar over the next few years, I suspect commodities could be a big offset to the Canadian dollar appreciation on TSX earnings. So, net–net, I would say TSX earnings should probably benefit from a much weaker dollar going forward.

From a sector standpoint, very often investors will ask you, well, what happens to sector XYZ if the U.S. dollar goes up or down? I would say the impact of a weaker dollar is not uniform across all sectors. We have to do, I would say, the dirty work and evaluate the impact company by company. That’s due to different geographic revenue exposure in some sectors, currency hedging, cost structure, debt denomination. The only sector that should stand to gain—the obvious winner, I would say—is gold. Most TSX sectors display a negative correlation to the dollar, meaning usually a weaker dollar tends to come with sector gains. But, again, you have to dig at the company level to have a better assessment of the winners and losers. My colleagues in equity research did that dirty work. You have more details in the report, but I just flag a few key points here.

When we look at Canadian energy stocks, all else equal—again, it’s all else equal—a weaker U.S. dollar would hurt cash flows. I think our team estimated that a 6% decline in cash flow could occur if the USD:CAD goes down from 139 all the way down to around 130. But as I pointed out, everything is not equal. However, you usually see firmer energy prices when the dollar drops, and that might have a positive impact as well on some on some costs labeled in USD. If we move to the industrial sectors, Canadian-based companies that could suffer from a weakening dollar are mostly concentrated in the environmental services, aerospace, and defence, freight transportation sectors. But the winners should be, again, the airliners. Why? Because usually [when there is] a stronger CAD and a weaker USD, Canadian consumers tend to travel a bit more, you have USD costs such as oil that are declining. If you move to financials, I’ll conclude on that. For Canadian banks, our team estimated that about a 10% strengthening in the Canadian dollar versus the USD usually or on average reduces 2026 forecasts for large banks by about 3%. The impact could be about the same for insurers.

So, I’ll pass it over to Bannon, I guess, for the Q&A.

Bannon Kopko: Thanks Hugo. And thanks, team.

We’ll open the floor up to some questions here. Why don’t I start with Shaun?

Shaun, can we dig a little on the FX front here? It’s a relative game, so when we’re talking about a further potential U.S. dollar weakness, how does that compare to some of the other big currencies out there? How much of an island is the USA on? You know, when we’re talking economic outlook deficits, these seem like global issues. What are you thinking, say, euro and I think you mentioned yen there, but more importantly they wanted to key in on the C-dollar too and forecasts there.

Shaun Osborne: So, as I mentioned, generally our forecast implies roughly I think it’s 6 1/2% from current levels, 6 1/2 to 7%—so a 6% to 7% decline in the dollar index overall. Now currencies have moved around a little bit since we last revised the FX outlook, so relative to where we were at that start point, some of these moves do look relatively bigger. The yen, for example, has not picked up as much ground as we expected, so far. And the CAD has underperformed over the past few weeks by quite a significant margin against most of its major currency peers. So, it hasn’t really picked up as much ground as we would have expected during this period of soft but consolidating U.S. dollar. So, our forecast for the CAD. To return just briefly to the fiscal issue. Most large countries—we know most large, developed countries are facing very significant fiscal challenges at the moment. I think that the issue that we have with the U.S. is that the trajectory of U.S. fiscal policies is much more alarming relative to even the weak situation that we see in some European countries, maybe even Canada to an extent. And clearly Japan is a bit of an outlier in this context with a very, very weak fiscal backdrop to the situation in Japan. The difference there I guess is that most of that debt is held onshore by Japanese investors, and the yen may not be as threatened by the weak fiscal centers in Japan as we think the dollar is. But you’re right, it’s a relative game. And, from a fiscal point of view, it’s really a case again of kind of looking at the least-dirty shirt or in this case the most-dirty shirt. And we think that is the U.S. dollar. So specifically for our outlook for the Canadian dollar, we’re still forecasting 134 for the end of this year, 128 for the end of next year. I think those levels, we’re looking a little bit shy of that obviously in terms of the trend in the CAD right now. But I certainly think 128 is still very much on the radar for the CAD looking ahead to the coming year and what we expect from a monetary policy point of view. So, we expect a significant drop in the U.S. policy rate, as René mentioned, maybe a little bit more coming from the bank in the next little while, but the Bank of Canada has already front run a lot of the easing, and we expect the Fed to have a quite a significant job at hand to catch up with that. So that implies pretty significant narrowing in the policy differential between the Bank of Canada and the Fed. Right now, swaps are pricing in the differential around about 90 to 100 basis points. That should still narrow quite a bit further over the next 12 months or so, and that should give the Canadian dollar a bit of a tailwind at least, even with some of these other negatives that we can see sort of lingering around the CAD outlook at the moment.

Bannon Kopko: Great. Thank you. We’ll stick with you on this one, Shaun.

The DXY has been trading sort of range bound for the last number of months. I’m just wondering how busy you are in terms of speculators and others talking about this. Do you think the Street’s grasping what could be ahead enough thus far, or the investors or again speculators you’re talking to?

Shaun Osborne: I think the first half of the year was very much characterized by this big drop in the dollar that seems to have reflected maybe some diversification away from the U.S. dollar, some portfolio shifts away from U.S. markets. And that trend appears to have died down a little bit now. We’re probably reverting back to, I think, more fundamental drivers for the dollar in the second half of this year and into the end of this year and 2026. I still think there’s potential for further portfolio shifts away from the U.S. dollar. We’ve seen speculators generally sort of reduce their negative views on the dollar through July and August, as the dollar has consolidated after that very significant first-half decline. But broader positioning still seems to be quite significantly exposed to the U.S. dollar when we look at overall exposure to the U.S. dollar and U.S. asset markets. There has been a, I’d say, a modest shift away from the U.S. dollar and U.S. assets in so far this year. But there may well be more to come on that front. And I think to René’s point, you know, the timing of these moves is difficult to pin down. We can see the fundamental challenges ahead for the U.S. dollar. But as I mentioned, markets typically do a pretty poor job of factoring in these risks until it becomes blatantly obvious that this is a major challenge and a major negative for the U.S. dollar. We’re perhaps not quite there yet, which means maybe a little bit more consolidation in the dollar rather than the sort of straight-line decline over the next month or possibly even into the end of the year. But I would expect in 2026 we’re going to see more evidence of a weaker dollar emerge.

Bannon Kopko: Great. Thank you.

I’ve got a question for René here. They want to hear more about this macroeconomic model. What makes it special and how has it performed historically?

René Lalonde: This model is pretty large model, and it’s inspired by the models that are used at the Bank of Canada where I come from. It’s actually sort of smaller version of the U.S. model used at the Bank of Canada and the Canadian model used at the Bank of Canada, but integrated, which is great because at the Bank of Canada, it’s split. And we have those links that are fully integrated between the two economies.

The model has been performing pretty well, especially on the inflation front. So recently, the big rise of inflation followed by the drop of inflation has been forecasted pretty well by the model. And in terms of GDP, the Canadian block is doing a better job than the U.S. block, but still the U.S. GDP block is also decent. And in terms of exchange rate, it’s actually performing fairly well, as well, capturing both the cyclical factors like interest rate differential, growth differential, and more the long-run factors like the deficit-to-GDP ratio and also the price of oil on the Canadian side, but also somewhat in the American side.

So, it’s the same class of model in use at the Bank of Canada for both the countries and it’s also in the same class of model used by the Fed FRB/US, which has been used by the Fed for a long time. It’s a scaled-down version obviously because we don’t have the resources to handle such a large model that the Fed is using. But it’s still pretty disaggregated. I would say that on the inflation front, it’s been pretty good and the GDP fairly good and also on the exchange rate.

Bannon Kopko: Thank you.

Maybe another question for Shaun here. Asking about Trump and team. Have they been open about where they see the U.S. dollar go or where they’re comfortable seeing the dollar go? And then is there anything they can do to revert course if it does get into red zone territory, you know, changing tariff policy, maybe federal relations, maybe something forced on them? Any thoughts there?

Shaun Osborne: I think we haven’t had, I’d say, very strong messaging on the exchange rate from the administration. We know in the last Trump term that the exchange rate was quite a strong topic of debate and a lot of debate about whether the U.S. wanted a strong or weak currency back then. I think René captured it quite well. I think implicitly we understand that with a very aggressive trade policy that’s been pursued in the U.S. right now, a weaker exchange rate would make sense to be part and parcel of that. We haven’t seen, I’d say, the sort of aggressive verbal intervention to try and talk the U.S. dollar lower that we might have seen in other episodes of trade tensions. But the exchange rate has certainly come up in discussions. We know that, whether it has come up in discussions with the U.S. trade partners, particularly in Asia. And I think the comment that struck me early this year was, when the dollar was looking particularly weak and quite vulnerable, Treasury Secretary Bessent was asked about this on TV and he said: “well, the dollar’s not really weak; it’s the other currencies that are strengthening”, which I think kind of implied that they were pretty much OK with the weaker dollar and they weren’t going to throw up any barriers to the dollar weakening further at that point. We’re sort of trying to divine through what’s said and what’s not said here a sense of what they think about the exchange rate. My sense is that they would probably not stand in the way of a weaker U.S. dollar at this point because it suits what they’re trying to achieve on the trade front.

Bannon Kopko: Thanks, Shaun.

Hugo, another one for you. You’ve been a gold bull for a while and hats off on that. You’ve been right, but it’s been a great run. Are you feeling anxious? Any thoughts on the outlook?

Hugo Ste-Marie: Anxious. No, not really. Again, I think we have all the right ingredients to see this bull market in the gold price extend. We have talked about U.S. dollar weakness, U.S. administration tariff uncertainty remaining elevated. When you look at valuation, despite the big run in gold stock prices—I think the TSX gold index is probably up something like 90% plus this year—valuation still remains below where it was in 2011 when gold was peaking. Back then, the EV to forward EBITDA ratio was above 6 times. It’s just above 5 today. So, I think there’s room for a bit more valuation expansion. Balance sheets are cleaner. With lower or low oil prices, that could help margins. When I look at the bullion versus consensus, as well, we can track that Wall Street is calling for, or probably discounting in their models, earnings expectations around $3,200 gold price; like spot is above $3,600. So as long as that remains the case where you have spot above consensus forecast, we could see positive revisions. I think you have key factors that could sustain the bullion and gold stocks going forward.

Shaun Osborne: So, Bannon, on that note, I’ll just chip in here with an interesting little—I saw a report earlier this week that—I think is the first time since the late 1990s that central bank gold hold holdings are now above U.S. Treasury holdings. So central banks have been major buyers, massive buyers, of U.S. gold, physical gold, over the last little while and continue to hoover up assets, non-fiat assets look particularly attractive in this kind of environment of uncertainty and inflation concerns, and I think the demand we’ve seen from official buyers has been a significant part of that story and may continue to be so as these investors try and avoid or reduce exposure to the U.S. dollar.

Bannon Kopko: Thanks for that. Actually, Shaun, let’s continue with you.

Just asking about your targets: year-end 2025 and then again as we work our way through 2026. I believe you have one of the, if not the, lowest forecasts out there.

Shaun Osborne: For dollar CAD, possibly not the lowest on the Street, but maybe the lowest dollar CAD forecast maybe amongst the Canadian banks at this point. The way the CAD is trading right now is leaving me a little bit jaded to be frank about, you know, the performance of the last little while. It’s a bit disappointing given that, you know, we do expect the CAD to end this year a bit closer to 134. But I’m still confident in the outlook for general dollar weakness as we move into 2026. And as I said earlier, I think, given what we’re expecting in terms of the monetary policy evolution between the U.S. and Canada over the next 12 months or so, I think our 128 call is still valid and certainly reachable.

Bannon Kopko: Thanks, Shaun. I think René might want to sort of add to that a little bit too.

René, any thoughts—macro?

René Lalonde: I would like to add a point on the tariffs. It looks like the tariff effect in Canada, which we think will peak at about -1% of GDP—so that would be the marginal effect of the tariff on the economy—has been a bit happening faster than expected. We were thinking that it would be spread towards you know 2025 and 2026 and now it’s mostly happening in 2025. As for the U.S., we’ve not been surprised that much, so we think that the effect of tariffs will be felt going forward. So that will weaken the U.S. economy going forward somewhat relative to the future path of the Canadian economy, which will justify having a weaker exchange rate as well for the U.S.

Bannon Kopko: That’s great, René, thank you. And thanks, Shaun.

Hugo, I have a question coming in wanting to ask a bit more about your expectations of FX and the impact on the Canadian energy sector.

Hugo Ste-Marie: OK. Yeah, fair point. What I mentioned earlier is on average that should have a weakening dollar—so a rising Canadian dollar should have a negative impact on 2026 cash flow. If you look at the stocks that are under Scotia coverage, 2026 cash flows could go down by about 6%—again, that’s the average—if the CAD goes from 139 down to around 130. What you have to keep in mind is oil prices as I mentioned are labeled in USD. Even Canadian prices like WCS, everything is labeled in USD. So obviously if the USD weakens and the Canadian dollar goes up just by default, you tend to have probably lower revenues generated. So that’s why we have some negative impact there. But keep in mind, as I said, it’s all else being equal. Usually, the weaker USD tends to translate into higher energy prices. That could be enough said. What we see as an  off-setting factor as well, which could probably come a bit later than 2026 though, is probably some lower costs that are denominated in U.S. dollars. Think about steel, frac sand; again, those are USD labeled so if the USD goes down, CAD goes up, it means that some of your costs could be lower as well, but that could take a bit more time to play out. That could be more a 2027 story on the cost side. So, the first impact could be at the marginal negative. If you look at some utilities, pipeline, power companies, U.S. has been a big growth driver for these guys. Many Canadian companies have like 50% of their cash flows coming from U.S. assets. So, a weakening dollar would probably weigh on these cash flows as well.

Bannon Kopko: Thank you, Hugo.

And then I have another question coming in on M&A in Canada. How does a weaker U.S. dollar play into that historically? Do you think it’s a signal or is there any indication of what it could mean for interest in Canadian companies?

Hugo Ste-Marie: I don’t know if it’s going to come from a weaker USD, but clearly what I would point out is if we have a more pro-growth agenda—and we will see in the next few months; we should have the budget in at some point in October. But clearly, if the current government is able to put into action some growth initiatives that would support Canadian GDP growth and give confidence that Canada is now open for business versus what happened in the last 10 years, clearly that could help global investors to come back to Canada and that would be positive not only, I think, for the currency, but that could be positive for the Canadian equity market, which is a relatively small piece, I think have still room to expand. So that could be quite positive in my opinion.

Bannon Kopko: That’s perfect.

I wanted to say thanks for everyone for joining us this morning. And I wanted to thank each of our speakers for their time and effort. Keep an eye out for future multi-asset reports ahead, everyone, and have a great day.