Why the U.S. Dollar's Surge Against the Loonie Could Hit Your Portfolio

• You could lose purchasing power on Canadian‑denominated holdings if the loonie keeps slipping.
• Historical USD/CAD spikes have preceded major corrections in commodity stocks.
• Technical resistance at 1.38 may act as a catalyst for a breakout or a rapid pull‑back.
• Export‑driven sectors (energy, mining, agriculture) are the most exposed to this move.

You’re probably underestimating how today’s USD surge could erode your Canadian assets.

Why the U.S. Dollar’s 3‑Day High Matters for Canadian Investors

The greenback nudged to 1.3635 CAD, its strongest level in three trading sessions. For a currency that typically hovers between 1.30 and 1.40, this move is not just a blip—it signals renewed risk‑off sentiment in North America. A stronger USD makes imported goods more expensive for Canadians, squeezes consumer confidence, and forces corporate earnings in Canada to be reported in weaker CAD terms when converted to U.S. dollars.

From an investor’s perspective, the immediate impact is twofold: first, any CAD‑denominated bond or equity exposure will see its dollar‑value decline; second, sectors that earn a significant portion of revenue in U.S. dollars—think energy exporters, mining giants, and agribusiness—face a double‑edged sword of higher foreign‑currency earnings but also higher domestic cost bases.

Technical Barriers: The 1.38 Resistance Level Explained

Traders watch the 1.38 mark as a key psychological barrier. In technical analysis, resistance is a price level where selling pressure historically outweighs buying, often because traders who bought lower look to exit near that zone. A breach above 1.38 could trigger algorithmic stop‑loss orders, accelerating the loonie’s decline. Conversely, a failed attempt will likely see a swift retracement back toward 1.35, offering a potential buying opportunity for contrarian investors.

Understanding these dynamics is crucial for timing entry and exit points. If you hold CAD‑linked assets, consider setting protective stop‑losses just above the 1.35 level to guard against a sudden dip, while also watching the 1.38 threshold for a potential trend continuation.

Sector Ripple Effects: Energy, Mining, and Export‑Driven Companies

Canada’s economy is heavily weighted toward commodities. A stronger USD translates into higher nominal prices for oil, natural gas, and metals on global markets, benefitting exporters. However, the domestic cost structure—labour, equipment, and services priced in CAD—can offset those gains. Companies like Suncor Energy, Canadian Natural Resources, and Barrick Gold report earnings in CAD but earn revenue in USD, creating a natural hedge that can be both a blessing and a curse.

For investors, the key is to dissect each firm’s currency‑hedging strategy. Firms with robust hedging programs may smooth out earnings volatility, while those that rely on natural hedges could see earnings swing wildly with the FX rate. The same logic applies to agricultural exporters such as Richardson International; a weaker loonie boosts export margins but inflates input costs.

Historical Parallel: Past USD/CAD Swings and Market Outcomes

Looking back, the USD surged to a 1.40 high in late 2022 amid tightening U.S. monetary policy. Canadian equities, especially resource stocks, initially rallied on higher commodity prices but later faced pressure when the loonie weakened further, eroding net‑present value calculations for projects priced in CAD.

In the 2015‑2016 period, a rapid USD appreciation coincided with a steep decline in oil prices, creating a perfect storm that dragged the S&P/TSX composite down over 15%. The lesson? Currency moves rarely act in isolation; they amplify existing macro‑economic trends. Therefore, monitoring the USD/CAD pair is a proxy for gauging broader market risk.

How Canadian Exporters Like Barrick and Suncor Are Positioned

Both Barrick Gold and Suncor Energy have publicly disclosed multi‑year currency‑hedge programs covering a significant portion of their anticipated foreign‑currency exposure. Barrick, for instance, locks in a portion of its anticipated USD revenue through forward contracts, mitigating the impact of a volatile loonie on its profit margins. Suncor employs a mix of natural hedges (physical oil sales in USD) and financial instruments.

Investors should examine the hedge ratios disclosed in quarterly filings. A higher hedge ratio generally means less earnings volatility, but it can also cap upside if the USD continues to rise. Conversely, a lower hedge ratio leaves the firm more exposed, potentially delivering outsized gains if the CAD weakens further.

Investor Playbook: Bull and Bear Scenarios

Bull Case (USD Breaks 1.38):

• Accelerated loonie depreciation pushes commodity export margins higher.
• CAD‑denominated assets become cheaper for U.S. investors, attracting foreign inflows.
• Companies with strong hedging may outperform peers by delivering stable earnings.
• Consider overweighting Canadian resource ETFs and currency‑hedged equity funds.

Bear Case (USD Retraces Below 1.35):

• Loonie rally reduces export‑driven profit boosts, pressuring commodity stocks.
• Higher Canadian consumer purchasing power could shift capital toward domestic‑focused sectors (financials, real estate).
• Investors may pivot to CAD‑denominated bonds for yield advantage.
• Deploy stop‑losses on high‑beta resource names and consider defensive sectors.

Regardless of which path the market takes, staying attuned to the USD/CAD dynamics offers a decisive edge. Use the 1.38 resistance as a guidepost, monitor corporate hedging disclosures, and align your portfolio to either capitalize on a weaker loonie or protect against a sudden rebound.