Hedge Funds Are Dumping the Canadian Dollar, Should We?

Hey traders, I am back looking at the commitment of trader reports this week to see if there has been any big changes. 

Hegde funds have ramped up short positions on the Canadian dollar after reaching extreme long positions. 

The USD/CAD prices fell below the 1.3800 handle again but could positioning suggest this could turn? 

Current hedge fund activity 

On the 28th April hedge funds reached an extreme long position, similar to the levels seen back in September 2024. Typically when the hedge funds reach an extreme we can often see a reversal or repositioning in their activity. 

In this case we had an initial reversal of CAD futures (USD/CAD long) but this didn’t last very long. 

However, now we have some divergence going on. What we usually see is the hedge funds following price action as they are trend followers, but we have hedge funds adding to their short positions (CAD futures lower = USD/CAD higher) and decreasing long positions. 

Hedge funds increased short positions by 21,084 and decreased long positions by -698, meaning a net short position of 21,705. That is the highest out of all the G10 currencies. 

Why would they do this

A number of reasons could contribute to the positioning but the main factors would include:

• Canada vs US trade negotiations. We know US President Donald Trump and Canada’s Prime Minister Mark Carney do not necessarily see eye to eye, so I expect to see some back and forth between the two countries when it comes down to trade tariff deals. 

• Oil prices remain subdued. As an oil producing nation, Canada tends to benefit from higher oil prices, but with oil trading towards or even below $60.00 a barrel, it could keep hedge funds on the sell side for now. 

• Bank of Canada has been slashing rates and unemployment rates remain high with the last reading seeing rates reach 6.9%.

On the other hand there are some positives within the Canadian economy: 

• Canada’s stock market TSX has just reached a new all time high, this was after Trump paused 50% tariffs on the EU after announcing them on Friday. This has given Canadians or at least Canadian stocks something to grab onto as Trump is open to negotiation. 

• Canada’s CPI remains higher, especially core which could suggest that the Bank of Canada will slow down the pace of cutting in the near future. 

• USD weakness is still in place, and if this continues then it’s likely that USD/CAD prices may move lower too. 

Seasonal pattern

Interestingly the market has been following a seasonal pattern, 2025 so far has moved in line with a 22 year average. In the middle of may we typically see USD/CAD prices fall until the 10th June, and 2025 so far is following this average. 

This offers an interesting hedge to the outlook that hedge funds are looking at right now. 

Final Thoughts

Well, it seems the hedge funds are happy to sell Canadian dollar futures right now, whether that’s in preparation for trade tariff negotiations or perhaps they see weakness from the Canadian economy coming. What’s interesting is that we have a slight divergence between their positioning and current prices. 

We will have to wait and see if this plays out, for now I am on the CAD short side, but this could change if the narrative switches.