Hedge funds and other large speculators increased bets the Canadian dollar will drop against its U.S. peer in the wake of the Federal Reserve's first rate increase in almost a decade as renewed weakness in crude oil weighed on the domestic outlook.
Positions that profit from Canadian-dollar weakness outnumbered those in its favour by 56,027 contracts in the week ending Dec. 22, the biggest net-short position in the market since the final week of August, according to data released Monday by the Washington-based Commodity Futures Trading Commission. It's the first hint of how the market positioned itself following the Fed's quarter-percentage-point rate increase on Dec. 16. "There's definitely more downside," Emanuella Enenajor, senior economist at Merrill Lynch, said.
Since the Fed's move, the Canadian dollar has fallen to an 11-year low of $1.4001 per U.S. dollar, as crude oil resumed its descent and early data on economic growth in the last three months of 2015 came in weaker than expected.
That's seen the market increase odds the Bank of Canada will cut its own interest rate a third time since the oil collapse that has erased more than half its value since last year.