Canadian Dollar Surges as Speculators Go Net Long After 2.5 Years
The Canadian dollar (CAD) experienced a notable increase against the U.S. dollar (USD) on Monday, reaching a ten-day high. This surge came as speculators adopted a net-long stance on the loonie for the first time in two and a half years.
Key Highlights of the Surge
- CAD traded 0.8% higher at 1.3565 per USD, translating to 73.72 U.S. cents.
- Intraday peak reached 1.3560, the strongest level since January 30.
- Speculators shifted to net-long positions, marking a significant change.
Factors Contributing to the Strengthening of the CAD
According to Tony Valente, a senior FX dealer at AscendantFX, the Canadian dollar gained momentum from encouraging January labor market data. While Canada saw a loss of 24,800 jobs in January, the unemployment rate fell to a 16-month low of 6.5%. This dip in unemployment is unlikely to prompt the Bank of Canada to lower interest rates anytime soon.
The U.S. dollar faced broad declines, which also supported the Canadian dollar. A report revealed that Chinese regulators advised financial institutions to reduce their exposure to U.S. Treasury bonds, prompting a softening of the USD across major currencies.
Speculative Positions and Market Analysis
Data from the U.S. Commodity Futures Trading Commission indicated a shift in speculative positioning: the Canadian dollar moved to a net-long position of 2,130 contracts as of February 3, up from a net-short position of 16,046 contracts the previous week. Shaun Osborne, chief currency strategist at Scotiabank, noted a significant liquidation of bearish gross shorts while gross longs remained largely stable.
Osborne highlighted that historically, most adjustments in CAD positioning skewed bearish; however, recent reports indicate a growing build-up of gross longs since December.
Impact of Global Factors
The price of oil, one of Canada’s key exports, rose by 1.4% to $64.44 a barrel. This increase was driven by renewed concerns over potential supply disruptions due to escalating tensions between the U.S. and Iran. Meanwhile, Canadian bond yields experienced a slight decline, with the 10-year yield down by 1.6 basis points, settling at 3.394%.
As the Canadian dollar continues its upward trajectory, market analysts will closely monitor external factors that may influence future movements and positioning.
