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Would a Donald Trump Re-Election Mean a Stronger Canadian Dollar?

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This November will see Americans cast their ballots, and the whole world will be watching what happens in the 2020 elections for the U.S. presidency. Whether or not Donald Trump gets re-elected for the position, the world will feel the impact of the election.

It remains unclear whether the impeachment proceedings will result in Trump being moved out of office. However, it is clear that a second Donald Trump term would give the billionaire another four years to craft his political legacy. The question is, how would a second term for Trump impact the Canadian economy?

I will discuss the possible impact of a Trump re-election on Canada.

Cross-border trades in limbo

Businesses that rely heavily on cross-border trade with the U.S. can expect volatility if Trump remains president. The automotive industry employs more than 125,000 workers and indirectly affects another 400,000 workers. Trump’s feud with California over fuel efficiency standards could put some of those jobs at risk.

President Obama set fuel efficiency goals for the entire country during his presidency. Trump chose to freeze all the standards Obama set. However, California decided to follow through on the standards for fuel efficiency set by the former U.S. president. The Canadian automotive industry historically aligns with the corresponding U.S. sector, and it could see volatility there.

What happens if Biden gets elected

Strategist Marko Kolanovic is renowned for making an accurate call about the stock market rally after Trump’s election for his first term. He also called the rebound from the March 2020 downturn due to COVID-19. He is expecting the momentum to shift in favour of a second Donald Trump term.

Kolanovic did not exactly point towards whether a Trump re-election could steer towards a stronger dollar. However, he implied that Biden winning the election could lead to a weaker dollar. Biden’s bid to introduce several progressive policies could lead to underperformance in U.S. assets.

Wall Street does not seem eager for a Biden victory because of the potential tax increases. The same impact could be felt across the defence and the oil and gas sector. The progressive policies could lead to a decline in business for oil producers, as Biden will likely push for energy-efficient policies.

What does this mean for Canada?

If the Democrats pull off a victory in November, Canada could face an entirely new set of challenges. Some Democrat candidates have campaigned plans to rein in big banks. It means that their changes in policies could make the financial industry less profitable. A reduction in profits from banking in the U.S. could spell bad news for many Canadian banks.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is one of Canada’s biggest banks. It is a well-capitalized financial institution that consistently earns substantial revenue for its shareholders. It is also among the top dividend-paying stocks trading on the TSX. With a history of paying dividends for 164 years, TD has also grown its dividends at 10% in the last two decades.

Its ability to grow dividends come from TD’s growing revenues and strong risk management. Its retail focus business and loans. It has diversified revenue channels that fuel further growth for the bank. However, significant policy changes in the U.S. could decrease its profits from across the border. Between increased loan-loss provisions and a possible change in policies, Canadian banks like TD could suffer.

Foolish takeaway

We still have significant time to see what the election holds for the United States. I would advise keeping a close eye on proceedings and preparing for market volatility before and after the election. I think Toronto-Dominion Bank will remain a safe long-term bet for Canadian investors, but it could face short-term pain depending on which direction the election goes.

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Fool contributor Adam Othman has no position in any of the stocks mentioned.

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