Hedge Funds Build 99,823 Bearish Canadian Dollar Bets as U.S. Tariff Threats Weigh

Q: With hedge funds placing record bets against the loonie, are U.S. tariffs a death blow or a hidden trap for short sellers?

U.S. tariffs are a real blow to the loonie in the near term, but the trade is crowded enough to be a trap for short sellers if policy or macro conditions shift. The bearish case is strong on the facts. Hedge funds are holding nearly 100,000 net short CAD contracts, the largest bearish position in about two years. The loonie has already fallen to roughly 70.9 U.S. cents, pressured by new U.S. tariff threats, softer Canadian growth prospects, and a wide rate gap: the Federal Reserve is around 3.5%-3.75% while the Bank of Canada is at 2.25%. That spread has pulled capital toward U.S. assets and kept USD/CAD above 1.40. Analysts also warn the new duties could hit a meaningful slice of Canadian exports and shave 0.3 to 0.6 percentage points from growth if maintained. But this is where the trap appears. Positioning is extremely one-sided. Scotiabank calls CAD the most shorted major currency, and its strategists note gross shorts are extended enough to leave bears vulnerable to a squeeze. Tariffs also still look partly negotiable: some measures have a 30-day runway before taking effect, and U.S. officials have left open the possibility of interim trade deals with Canada later this year. That means the loonie can stay weak near term, especially if tariffs stick and the Fed stays firmer than the BoC. But for short sellers, the risk is that even modest relief — a trade truce, softer U.S. data, or firmer Canadian inflation or oil — could trigger a sharp rebound.

3 articles · Updated · Bloomberg · Jul 25

99,823 bearish Canadian-dollar contracts were held by leveraged money managers in the week ended July 21, the heaviest negative positioning since August 2024.
American tariff threats are driving that stance, with the overhang dragging on the loonie and prompting funds to add to wagers on further weakness.
CFTC data released Friday shows the selloff view has built to a two-year extreme, underscoring how trade risk is dominating sentiment toward Canada’s currency.

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Hedge funds have accumulated the most negative bets on the Canadian dollar in two years as the threat of American tariffs drags on the currency Read more at the link in our

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Hedge Funds Build 99,823 Bearish Canadian Dollar Bets as U.S. Tariff Threats Weigh

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