TORONTO (July 23): Speculators raised their bearish bets on the Canadian dollar to the highest level among the major currencies in the weeks before US President Donald Trump announced new tariffs on Canada, helping push the loonie to a recent 14-month low.
Net short Canadian dollar positions held by non-commercial accounts stood at US$12.5 billion in the latest weekly data from the Commodity Futures Trading Commission that was released on Friday, days before Trump announced that 50% tariffs on a wide range of goods would take effect on August 19.
It was the highest net short position for a second straight week of any currency traded on the Chicago Mercantile Exchange and the largest in the loonie since December 2024.
“Speculators have been betting on Trump taking aim at Canada,” said Adam Button, chief currency analyst at investingLive. “Trump has this penchant for brinksmanship that I assume will be part of (trade) negotiations.”
A weaker currency tends to help exporters but it could also raise inflation and slow capital investment. Canadian Prime Minister Mark Carney is counting on increased investment to boost Canada’s productivity.
The loonie touched 1.4248 per US dollar, or 70.19 US cents, last month, its weakest level since April 2025. It has steadied near 1.41 since the tariff announcement as higher oil prices offset the increased trade uncertainty.
Trump declined to extend the US-Mexico-Canada Agreement, starting a decade-long clock to wind down the trade deal and pressuring Mexico and Canada to reach bilateral deals with the US.
Speculators were unlikely to abandon their bearish bets ahead of August 19, Button said, adding, “Trump will take it (the tariff threat) as far as he can go. He may even take it beyond that to a couple of days of implementation.”
US Trade Representative Jamieson Greer said on Wednesday that he hopes to strike some interim trade agreements with Mexico and Canada this year while tackling thornier changes to the US-Mexico-Canada Agreement in 2027.
The Bank of Canada has cut its 2026 growth forecast for Canada’s economy to 0.7% from 1.2%, pointing to uncertainties related to US trade policy and the war in the Middle East.
“If you’re bullish on the Canadian dollar there’s not a lot to hang your hat on,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “Productivity growth is weak, economic growth has been soft even if it’s recovering.”
Foreign pension funds and insurance companies are buying Canada’s federal bonds in record amounts but those types of investors often hedge their foreign exchange risk and can be less sensitive than speculators to short-term price movements in the currency.
Investors expect the BOC to leave its benchmark interest rate on hold at 2.25% over the coming months even as they raise bets on tighter monetary policy from the Federal Reserve. The gap between Canada’s 2-year yield and the US equivalent has widened to 144 basis points in favour of the US note, which is the widest since May 2025.
Other major central banks, such as the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand and the Bank of Japan have already raised rates this year, while the BOJ has intervened in the foreign exchange market to support the yen.
“CAD feels relatively safer to short — there’s less in your way,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull, who is bearish on the loonie. “You’re not fighting upstream with central bank policy that could potentially run you over.”
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