Earlier this week, as the loonie was in the midst of its post-rate-hike rally, former trader Kevin Muir decided it was time to say “sold to you” to all the newly-minted CAD bulls.
Essentially, Kevin was laughing. Why? Simple: because specs had gotten burned badly. After going the most net short CAD on record in May, the loonie did nothing but rally:
I mean look, we all know spec positioning can be a contrarian indicator, but Jesus Christ – that was bad.
One thing to note here is that we live in a world where central bankers have put the “forward” in “forward guidance.” Markets are so sensitive to policymaker rhetoric that it’s gotten to the point where you have to telegraph the telegraphing – witness the news we got Thursday about Mario Draghi being scheduled to address Jackson Hole in August for the first time in three years. They’re now announcing the pronouncements ahead of other announcements.
So by today’s absurd standards, the BoC didn’t give the market much warning about this week’s hike. Consider how this unfolded as recounted by Bloomberg’s Luke Kawa:
But just one month ago there wasn’t a single analyst surveyed calling for a July hike. And why would they have been?
- In January, the Canadian central bank said a rate cut was still on the table.
- In March, monetary policy makers emphasized that Canada had a “lot more room to grow” than the U.S.
- In April, they assumed a “decidedly neutral” stance.
- The following month, during a speech in Mexico, Governor Stephen Poloz cited the downward trend in core inflation measures as one of the reasons why the central bank remained on hold despite the start of a tightening cycle stateside.
Since that speech, core inflation measures have proceeded to slide, belied by measures of real activity that have come in slightly stronger than anticipated.
Then in June, exactly one month away from the Bank’s next decision, the nation’s top monetary policy makers briskly laid the foundation for an imminent interest rate hike with a one-two punch. First, Senior Deputy Governor Carolyn Wilkins indicated the Bank would be “assessing whether all of the considerable monetary policy stimulus presently in place is still required;” the following day, Poloz added that the rate reductions in 2015 had “done their job.”
These remarks fueled the biggest two-session increase in the Canadian two-year yield since former Governor Mark Carney last tightened policy at the central bank in 2010.
Well with the release of the latest CFTC data, we learn that a long, and exceedingly painful chapter for CAD shorts has (almost) come to an end.
In the week through Tuesday (so one day before the BoC), leveraged accounts trimmed their net CAD short by 30,375 contracts to just 9,581.
“CAD net shorts fell by $2.4bn and stood at just $0.7bn going into the Bank of Canada meeting on Wednesday,” Goldman notes, adding that “CAD positioning added $10bn in net shorts between the beginning of March and the end of May, but has reversed roughly two thirds of that move in the past six weeks.”
In short (no pun intended), the entire record short from May was nearly covered through Tuesday:
And as for anyone who was still hanging around bearish going into Wednesday, well, sorry about that…