Canadian dollar bearish bets scale back as currency rallies

By Fergal Smith
TORONTO, March 18 (Reuters) - Speculators further cut
bearish bets on the Canadian dollar from extreme levels seen in
January, Commodity Futures Trading Commision (CFTC) data showed
on Friday, as the currency extended its relentless rebound from
a 12-year low.
Net short Canadian dollar positions fell to 16,826 contracts
in the week ended March 15 from 25,781 in the prior week. At the
end of January, net short exposure was the largest in five
months at 66,819 contracts.
"The pillars of the Canadian dollar (bearish) story have
broken down, its been a rush to the exit in the last few days,"
said Adam Button, currency analyst at ForexLive in Montreal.
Data this week showed strength in manufacturing and retail
sales, feeding expectations first-quarter growth will surpass
the Bank of Canada's 1.0 percent forecast.
Moreover, expiring currency hedges may give exporters a
competitive edge.
The currency has rebounded 13 percent since Jan. 20 when the
Bank of Canada surprised many traders by not cutting rates.
The central bank cut interest rates twice last year to
offset the oil price shock, but has held steady so far in 2016,
while the implied probability of a rate cut by year-end has
slumped to 34 percent from 85 percent just one-month ago.
BOCWATCH
"Fiscal policy is taking the baton from monetary policy at
this stage in Canada," said Paul-Andre Pinsonnault, senior fixed
income economist at National Bank Financial.
The new Liberal government will introduce its first budget
March 22 and is expected to run a C$29 billion ($22 billion)
deficit in fiscal 2016-17, a Reuters poll showed, as it borrows
more to increase infrastructure spending in the hopes of
boosting growth.
Adding private sector investment to infrastructure projects
could lead to even greater spending.
The rebound in crude oil prices to 2016 highs above $40 a
barrel and stabilization in financial markets have fed the
recovery in the risk-sensitive commodity-linked currency.
Furthermore, the U.S. dollar has tumbled after the Federal
Reserve revised on Wednesday its outlook for interest rate
increases to just two by year's end.
Anybody who had not cut short exposure in the latest CFTC
report was likely "pushed over the edge" after the Fed decision,
said Button.