The US dollar rose 15 pips against the loonie today to 1.3950, which is the first time at that level since 2022.

The next level to watch is 1.3978, as a rise above that level would be the highest since the pandemic. And other than a brief spike in the pandemic, and a spike in the 2016 oil collapse, USD/CAD hasn’t been sustained at these levels since 2003.

The problem for the loonie is that Canada’s economy is struggling and the long-term picture is worsening. The housing market is impaired and new home sales are slowing due to high interest rates. Even if the Bank of Canada cuts, longer-term fixed rates (5 years are standard in Canada) have been rising. With that, we’re probably already at the bottom for standard Canadian mortgages and there is no sign of rising demand.

Another driver for Canada has been population growth, as this chart highlights.

That’s about to go into reverse as Canada’s governing Liberals have pledged a declining population in 2025 and 2026. Now some people are certainly skeptical about that but in every scenario, the pace of entries into the country materially declines and rising anti-immigration sentiment likely keeps it that way through the decade.

Some hope for the loonie comes from China stimulus and natural resources prices but those risks run both ways.

In the shorter-term, the risk trade dictates what happens next with the loonie. Right now the market is obviously on edge about the US election. Not many trades around it are clear but Harris is certainly better for Canada that Trump. She lived for many years in Montreal and wouldn’t be looking to renegotiate NAFTA or impose tariffs.

That said, there are certainly scenarios with a divided Congress and broad equity market selling that hurt the market mood and lead to loonie weakness.

There is a good argument to be patient in any election scenario and wait for the technicals to unfold as a break of 1.4000 would target 1.4500.

I talked about these themes in detail with BNNBloomberg earlier in the week.

This article was written by Adam Button at www.forexlive.com.