The DBS Equilibrium Exchange Rates (or DEER) indicate fair values for global currencies relative to a trade-weighted currency basket.

The Canadian Dollar (CAD) has dipped in the face of Trump's threat to impose tariffs on Canada and Mexico, with its valuation falling to the lowest since May 2017. Canada's economy is vulnerable to US tariffs, given that its trade with the US comprises over 30% of Canada's GDP. While Canada's oil exports will be less affected due to a smaller tariff, its auto sector could see a significant fallout, being highly integrated with the US. CAD undervaluation may linger given trade tensions, but US-Canada-Mexico negotiations are ongoing, and the final tariff outcome may not be quite as bad as feared. US Treasury Secretary Bessent had said that if Canada and Mexico were to match US tariffs on China, it would be a good starting point.

The Euro's (EUR) overvaluation has steadily narrowed since August 2024, in line with the ECB implementing a series of consecutive rate cuts in Sep, Oct, Dec 2024, and Jan this year. With the ECB set to follow up with another rate cut in March to lower the deposit rate to 2.50%, there is still scope for the EUR's slight overvaluation to compress further. Structural weakness in the economy, heightened export competition from China, the risks of US tariffs, as well as geopolitical uncertainty given the lack of US commitment to Ukraine under Trump, are all weighing on EUR sentiment.