The Canadian dollar rose against its U.S. counterpart on Monday as investors awaited further information on the Bank of Canada’s move to cut interest rates and after speculators increased their bearish bets on the currency to a record high.
The loonie was trading 0.1% higher at 1.3725 against the US dollar, equivalent to 72.86 US cents, after trading in a range of 1.3722 to 1.3764.
As of June 11, non-commercial accounts increased their net short positions in the Canadian dollar to 129,493 contracts from 91,639 the previous week, data on Friday from LSEG and the U.S. Commodity Futures Trading Commission showed…
This is the largest net short position in the currency in data going back to 1986.
“The rally in Canadian dollar shorts is a cyclical trade,” said Adam Button, chief analyst at ForexLive. “Global markets perceive that high interest rates will lead to an economic slowdown, particularly in Canada due to high leverage and real estate exposure.”
According to analysts, the Canadian economy is particularly sensitive to rising borrowing costs, due to high household debt and a short mortgage cycle. The typical mortgage term is five years or less in Canada, compared to 30 in the United States.
This month the Bank of England became the first G7 central bank to start cutting interest rates. The minutes of the political decision of June 5 will be published on Wednesday.
Canadian home sales fell 0.6% in May compared to April and fell 5.9% year over year, according to data from the Canadian Real Estate Association.
Canadian government bond yields rose across the curve, following movements in U.S. Treasuries.
The 10-year was up 3.5 basis points at 3.319%, extending its rebound from a four-month low hit during Friday’s session at 3.260%. (Reporting by Fergal Smith; Editing by Will Dunham)
