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Hedge funds increase their bets against the loonie

Loonies are displayed on top of U.S. bills in this posed photograph from 2008.

Mark Blinch/Reuters

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.

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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.

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