Canada: Speculators Dump The Loonie By A Record Amount
The National Bank of Canada | Mar 07, 2013 07:52AM ET
Global equity markets have been buoyed by pro-growth announcements in the past 24 hours. In China, the outgoing premier called for a GDP growth target of 7.5% in 2013. In order to meet the objective, the government is expected to increase the budget deficit from Rmb 800 billion to Rmb 1,200 billion (or from 1.5% to 2% of GDP). Meanwhile, in the eurozone, finance ministers announced that they were open to a more lenient stance with regards to fiscal austerity. Such developments should bring support to the beleaguered Canadian dollar, at least in the short term. Following a string of dismal economic reports, the loonie has come under severe pressure in recent weeks. Speculators joined the party last week with an aggressive reversal in CAD positions.
As today’s Hot Chart shows, the change - from 19,379 net long contracts to 21,433 net short contracts was the most abrupt on record, equivalent to a five standard deviation move. At this juncture, speculators are shorting CAD by the most since early 2012. We note that the CAD is the only commodity currency that is actually being shorted by speculators (AUD, NZD MXN are characterized by net long positions). Such an occurrence had not been observed since 2006. The CAD does look oversold.
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