Hedge fund bearishness on the Canadian dollar hovers near record levels, exceeded only once this millennium. Citi foreign exchange strategist Daniel Tobon views upside on the loonie as capped in the months ahead and any rally following
Loosely stated, higher bond yields and associated stronger economic growth attract foreign capital, which in turn creates demand for Canadian dollars in global currency markets. So when domestic bond yields are well above U.S. yields, as they were in November of 2021, the loonie is stronger. Outside of a brief period in May of 2017 when domestic bond yields fell below U.S. yields – a rare occurrence – speculative investors are now more bearish on the loonie than at any time since 2000.
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