Hedge funds turned most bearish on the Canadian dollar since 2024, driving USD/CAD higher as rate gap widens.
The CFTC report revealed leveraged funds turned net short CAD, the most bearish positioning since early 2024. This reflects market pricing for further Bank of Canada rate cuts and a widening US-Canada interest rate differential. USD/CAD broke above 1.3750, with technicals suggesting the next resistance at 1.3850.
The pair has cleared the 1.3750 region and now targets 1.3850, with potential extension to 1.3950. A close above 1.3850 would confirm the medium-term uptrend.
Extreme short CAD positioning often precedes sharp reversals. If Canadian employment data next week beats expectations, a short squeeze could send USD/CAD back below 1.3650. Option markets show demand for CAD calls.
The 2-year US-Canada spread has widened to 85bps, favoring the USD. With markets pricing 60bps of BoC cuts versus 45bps for the Fed by year-end, the carry trade advantage supports sustained USD/CAD upside.
Leveraged funds swung to the most negative Canadian dollar stance since early 2024, according to CFTC positioning data, signaling growing bets on further CAD weakness. The shift reflects widening US-Canada rate differentials and soft domestic economic data. USD/CAD climbed toward 1.38 on the news, with technicals pointing to additional upside.
The latest CFTC Commitments of Traders report revealed leveraged funds swung to a net short position, driven by expectations that the Bank of Canada will cut rates more aggressively than the Fed amidst softening Canadian economic data.
It marks the most negative CAD stance in over a year, indicating a strong consensus trade. Historically, such extreme positioning can precede sharp reversals if data surprises or risk sentiment shifts.
Momentum remains bearish, with USD/CAD eyeing 1.3850. However, traders should watch for potential snapbacks if upcoming Canadian employment data beats expectations or oil prices rally sharply.