Loonie Tunes: Closing The Book On A Short Gone Horribly Wrong

Last Friday, when the weekly CFTC data was released, we learned that in the week through July 11, specs had trimmed their CAD shorts by 30,375 contracts to just 9,581.

You probably don’t care one way or another about the loonie, but that was notable – as in “big league” notable.

Why? Simple: because it was just two months previous that specs were the most short CAD on record.

So what happened? Well, despite a possible housing bubble and a crude market that’s prone to collapsing (see Friday for example), the BoC was effectively forced to take an abrupt hawkish turn in solidarity with other DM central banks.

For those who missed it, here’s Bloomberg’s Luke Kawa to explain the sudden shift in the BoC’s policy narrative:

• 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.

And then came last Wednesday’s rate hike.

Needless to say, the rally that hike sparked in CAD cleared out the remaining shorts and this evening we learned that in fact, specs are now net long the loonie again:

“Hedge funds and other large speculators turned bullish on the Canadian dollar for the first time since March as wagers that the loonie will strengthen outnumbered bets it will weaken by 8,043 contracts in the latest period vs 8,604 net short positions the previous week,” Bloomberg wrote Friday afternoon.

And thus ends one of the most painful chapters in the history of spec positions gone horribly wrong.

Congratulations Luke, the loonie is back in favor – “RT if you cry every time“…