Key Takeaways
- • Leveraged funds, mostly hedge funds, held 91K more CFTC contracts betting on a lower Canadian Dollar than a higher one as of October 20, worth about CAD $9.1 billion, up from 39K on September 15.
- • Traders priced a Bank of Canada rate hike to 2.50% on Wednesday at about 80% by October 20, up from about 30% on October 16, which would be the first hike since July 2023.
- • Canada lost 42K jobs in August and 68K in September, with unemployment rising to 6.5%, while headline CPI was 3.1% and CPI-trim and CPI-median fell to 1.8% and 1.9%, below the BoC's 2% target.
- • The bet against the Loonie is the largest since 2006 apart from periods when the BoC was cutting rates, making this the first position of this size held into a BoC hike rather than a cut.
- • The Monetary Policy Report forecasts and the statement on the December 9 meeting will determine whether the hedge funds' position pays off, with a daily close below 1.3950 cited as confirmation of a Loonie rally.
Summary
Hedge funds hold one of their largest bets against the Canadian Dollar since 2006 ahead of a Bank of Canada decision on Wednesday, with traders pricing a rate hike at about 80%. According to the Commodity Futures Trading Commission data cited in the article, leveraged funds held 91K more contracts betting on a lower Loonie than a higher one as of October 20, worth about CAD $9.1 billion. That position has more than doubled since mid-September and grew in each of the five weekly reports since. Of the 20 years of weekly reports since 2006, only ten have shown a larger bet, and all of those came during BoC rate cuts or the July and August 2026 US tariff period. This would be the first position of this size held into a rate hike rather than a cut.
The BoC has held its policy rate at 2.25% for seven consecutive decisions since October 2025. A hike to 2.50% would be its first since July 2023 and comes alongside the quarterly Monetary Policy Report. Canada's Consumer Price Index rose 3.1% in the year to September, below the 3.2% forecast, with gasoline up 27.8% year on year. Excluding gasoline, prices rose 2.2%. The BoC's preferred core gauges, CPI-trim and CPI-median, fell to 1.8% and 1.9%, both below its 2% target. Governor Tiff Macklem said in Bangkok on October 17 that the bank will likely raise its inflation forecast well above July's projection.
The labour market complicates the case for a hike. Canada lost 42K jobs in August and 68K in September, and unemployment rose to 6.5%, according to the Labour Force Survey. Asset managers, pension, mutual and insurance funds, which held 105K contracts against the Loonie on August 11, had reduced that position to 5.4K by October 20. Banks hold 101K contracts betting on a higher Loonie. The article notes that the Federal Reserve is expected to hold on the same Wednesday, and that most economists in a Reuters poll expect a BoC hike Wednesday and another by the end of March.
The article frames two scenarios for the MPR. If the forecast keeps inflation above 2.5% into 2027 and the statement leaves the December 9 meeting open, traders may add a second hike, narrowing the rate gap and forcing hedge funds to buy back their contracts. A daily close below 1.3950, where the 200-day average sits, would confirm that outcome. If inflation returns near 2% in 2027 and growth is marked down, the hike may be treated as a one-off, and the hedge funds' bet would pay off with USD/CAD above 1.4100. The next CFTC data on the position will be released November 6, alongside the October Labour Force Survey.
The BoC has held its policy rate at 2.25% for seven consecutive decisions since October 2025. A hike to 2.50% would be its first since July 2023 and comes alongside the quarterly Monetary Policy Report. Canada's Consumer Price Index rose 3.1% in the year to September, below the 3.2% forecast, with gasoline up 27.8% year on year. Excluding gasoline, prices rose 2.2%. The BoC's preferred core gauges, CPI-trim and CPI-median, fell to 1.8% and 1.9%, both below its 2% target. Governor Tiff Macklem said in Bangkok on October 17 that the bank will likely raise its inflation forecast well above July's projection.
The labour market complicates the case for a hike. Canada lost 42K jobs in August and 68K in September, and unemployment rose to 6.5%, according to the Labour Force Survey. Asset managers, pension, mutual and insurance funds, which held 105K contracts against the Loonie on August 11, had reduced that position to 5.4K by October 20. Banks hold 101K contracts betting on a higher Loonie. The article notes that the Federal Reserve is expected to hold on the same Wednesday, and that most economists in a Reuters poll expect a BoC hike Wednesday and another by the end of March.
The article frames two scenarios for the MPR. If the forecast keeps inflation above 2.5% into 2027 and the statement leaves the December 9 meeting open, traders may add a second hike, narrowing the rate gap and forcing hedge funds to buy back their contracts. A daily close below 1.3950, where the 200-day average sits, would confirm that outcome. If inflation returns near 2% in 2027 and growth is marked down, the hike may be treated as a one-off, and the hedge funds' bet would pay off with USD/CAD above 1.4100. The next CFTC data on the position will be released November 6, alongside the October Labour Force Survey.
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