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Short bets against Canadian dollar hit record high

Short bets against Canadian dollar hit record high
Elmaz Sabovic

The Canadian dollar increased against its U.S. counterpart on June 19 as investors anticipated further insights into the Bank of Canada’s (BoC) recent interest rate cuts. The Loonie traded 0.04% higher at 1.3707 to the U.S. dollar, or $0.72.

This movement comes amid increasing bearish bets on the currency, with non-commercial accounts raising their net short positions in the Canadian dollar to 129,493 contracts from 91,639 in the previous week, according to U.S. Commodity Futures Trading Commission data.

Record short positions on the Canadian Dollar. Source: Gurgavin
Record short positions on the Canadian Dollar. Source: Gurgavin

All-time high short bets against the Loonie

The increased short positions mark the largest net short on record for the Canadian dollar, with data tracking back to 1986. Adam Button, chief currency analyst at ForexLive, explained that the surge in Canadian dollar shorts is part of a cyclical trade. 

“Global markets are sensing that high interest rates will lead to an economic slowdown, particularly in Canada due to high leverage and housing exposure,” Button said. 

Analysts highlight that Canada’s economy is susceptible to higher borrowing costs because of elevated household debt and a shorter mortgage cycle. Unlike the typical 30-year loan term in the United States, Canadian mortgage terms are generally five years or less.

Interest rate cuts in Canada fueled the increase in short bets

The Bank of Canada recently became the first G7 central bank to cut interest rates, and minutes from the June 5 policy decision are expected to be released on June 19. Economic indicators show that Canadian home sales fell by 0.6% in May from April and were down 5.9% annually, as reported by the Canadian Real Estate Association. 

Additionally, Canadian government bond yields increased across the curve, mirroring movements in U.S. Treasuries. The 10-year bond yield rose by 0.019% to 3.280%, extending its rebound during the June 19 session. 

Canada 10-year government bond performance. Source: Market Watch
Canada 10-year government bond performance. Source: Market Watch

These developments suggest that while the Canadian dollar saw a slight uptick, the broader economic outlook and market sentiment remain cautious.

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