For the first time since mid June, the dx has traded below CAD1.30. The greenback is weaker against all the major currencies. However, for the most part, it is still in well-worn ranges, which makes the breakdown against the Canadian dollar even more notable. It is not clear that today's break will be sustained. Indeed, we lean against it. However, a bounce back into the CAD1.3040-CAD1.3060 may offer a better selling opportunity.
As the Great Graphic here illustrates, the US dollar trended higher against the Canadian dollar since late January. That trendline comes in now near CAD1.29. However, before testing the trendline, it will meet the 38.2% retracement objective, which is found near CAD1.2950.
Some are linking the gains in the Canadian dollar and Mexican peso to positive noise from Washington about NAFTA. It is true that the US has been playing up the progress in talks, but the comments have emphasized Mexico over Canada as making the better progress.
Speculators in the futures market have one of their largest net short Canadian dollar positions in a year. Recall that speculative push against the greenback peaked last October when they had accumulated a net long position of 75k contracts – the most since 2012. This has been unwound and earlier in July, the net short position stood at almost 53k contracts. It has been trimmed over the past two weeks.
The net position is the result of the speculative gross longs and the speculative gross shorts. The bulls have cut their position from a little more than a 100k contracts at the end of last September to 20.1k contracts in the week that ended July 24. This is the smallest gross long position in three years.
The gross speculative short position rose from a little less than 20k contracts to almost 80k contracts earlier this month. The shorts have been covering for the past two weeks and the gross short position stood at 64.6k contracts as of July 24. There appears to be scope for additional position adjustment.
The Bank of Canada next meets in early September. It is too soon after the July hike for investors to anticipate another increase. However, there is better-than-even money that a hike will be delivered at the October 24 meeting, and by the end of the year, the market appears to have discounted almost a 70% chance of a hike. That is to say, investors seem to be a little more confident of a second Bank of Canada hike here in H2 than the Fed.