Canadian dollar rises, bearish bets on currency reach all-time high

The Canadian dollar CADUSD edged higher against its U.S. counterpart on Monday as investors awaited further insight into the Bank of Canada’s move to cut interest rates and after speculators raised their bearish bets on the currency to a record high level.

The loonie was trading 0.1 per cent higher at 1.3725 to the U.S. dollar, or 72.86 U.S. cents, after trading in a range of 1.3722 to 1.3764.

As of June 11, non-commercial accounts had increased their net short positions in the Canadian dollar to 129,493 contracts from 91,639 in the prior week, data on Friday from LSEG and the U.S. Commodity Futures Trading Commission showed.

It marked the largest net short position in the currency in data going back to 1986.

“The jump in Canadian dollar shorts is a cyclical trade,” said Adam Button, chief currency analyst at ForexLive. “Global markets are sensing that high interest rates will lead to an economic slowdown, particularly in Canada due to high leverage and housing exposure.”

Canada’s economy is particularly sensitive to higher borrowing costs due to elevated household debt and a short mortgage cycle, according to analysts. The typical loan term is five years or less in Canada, versus 30 in the United States.

The BoC this month became the first G7 central bank to begin cutting interest rates. Minutes from the June 5 policy decision are due to be released on Wednesday.

Canadian home sales fell 0.6 per cent in May from April and were down 5.9 per cent on an annual basis, data from the Canadian Real Estate Association showed.

Canadian government bond yields moved higher across the curve, tracking moves in U.S. Treasuries.

The 10-year was up 3.5 basis points at 3.319 per cent, extending its rebound from a four-month low that it touched during Friday’s session at 3.260 per cent.