The Canadian dollar has gained 1.3% against the US dollar so far this week. The Loonie’s gains occur as stocks recover from last week’s sell-off and, at least for now, sentiment has stabilized. Some are pointing to the significant Biden lead in the US election as the reason. It is not that the market’s prefer one candidate over another but that a decisive win is seen as removing any extended period of post-election uncertainty about the winner. The markets are currently pricing in a 90% likelihood of a Biden win, as reflected by various election models generally used on Wall Street. Also, a decisive win by Biden would likely come with a Democratic takeover of the Senate and therefore would make a stimulus package after the election, but prior to the inauguration in January, much more likely. All of that would be positive for risk assets like the Canadian dollar. In short, if there is a clear outcome tonight, expect the Canadian dollar to gain modestly tomorrow. On the other hand, if the US election heads in the direction of an extended contested outcome, expect CAD to lose significant ground while our southern neighbors figure out what to do.
