"Loonie Longs Are Set For A Painful Dose Of Reality": Trader

Is all hell about to breaks loose for Loonie longs?

Yesterday, Bank of America released a note titled simply enough "CAD longs at risk", in which it said that "according to our liquid cross border flow (LCBF) data, hedge funds and real money now appear to be in the process of selling out of extended CAD longs after having been consistent buyers since the summer." The Bank said that this represents an important directional shift and explained as follows: 

As argued last month, risks remain sharply skewed to the upside in USDCAD over the next few months based largely on supportive US vs. Canada fundamentals and CAD position liquidation potential. Based on confirming trends in the LCBF data, we are more comfortable with our position liquidation thesis and continue to expect a retest of 1.33.  Hedge funds began buying CAD after BoC Senior Deputy Governor Carolyn Wilkins delivered an upbeat assessment of Canada's economic economy on June 12, marking the beginning of a pivotal shift in the BoC's policy stance that ultimately saw the two emergency rate cuts of 2015 reversed in the July and September meetings. Hedge funds were net buyers of CAD in 13 of the 15 weeks following that speech, amassing a large cumulative position that peaked the week of November 17. In the three weeks since, roughly 40% of hedge fund longs in CAD have been liquidated.

As a result, BofA thinks that the risk is that real money follows the hedge fund lead and initiates the position squaring process, and added that "after unprofitably fading the Wilkins speech in the back half of June, real money began aggressively building long CAD positions from July through September, a period over which 80% of its peak cumulative long CAD position recorded on November 24 was put on. Although real money sold CAD over the last two weeks, our calculations indicate that 95% of the position remains, nearly half of it established at levels below 1.25 and thus susceptible to liquidation pressure if USDCAD were to appreciate on supportive fundamentals as we expect over the near term. Note that CFTC data similarly suggest extended CAD long positioning at risk of reversion (Chart 2)."

This negative sentiment carried over overnight into the latest note by former Lehman trader and current Bloomberg commentator who writes in his latest Macro View that "Loonie Longs Are Set for a Painful Dose of Reality." Here's why:

After seven weeks of consolidation, the Canadian dollar is due for another major leg of weakness. 


FX traders aren’t paying attention to what’s happening to Canadian oil markets but they’ll be forced to wake up soon enough. The price the country gets for its oil is collapsing due to problems with the Keystone pipeline and a rail bottleneck.


Bear in mind, this is at a time when oil prices globally are bid to boots. This may only be a temporary problem, but the price dislocations are sizable enough to cause a real impact.


Canada’s terms-of-trade are very much dependent on this oil contract and so they’re plummeting in sympathy. That’s going to force investors to reassess Canada’s fundamentals.


It’s an indebted economy, with a structural current-account deficit and growth that’s set to slow sharply in 2018. Household debt surpassed GDP last year, IMF data show. Amid the G-10, only the euro zone and Sweden are forecast to have higher unemployment rates next year.


The speculative market is still long CAD to an extent last seen just before the currency’s spectacular collapse in 2013, CFTC positioning data show. Why exactly?


This isn’t the time of year when complacency gets rewarded


Laowei Gweilo Crazy Or Not Thu, 12/14/2017 - 07:01 Permalink

good. between the new lumber tarrifs and record discount between West Tex. Int. and West. Can. Sel. of about -47%, more USD buying power or more CAD per USD benchmark price, respectively, is a good thing.higher cost of consumer goods from US imports is a nice way to put a little extra pressure on overdebt consumers, too. seriously. i'd rather take some inflation soft landing now that takes some steam out of debt than a debt hard landing later (though that may still happen with Trudeau's retarded policies).

In reply to by Crazy Or Not

karenm Thu, 12/14/2017 - 06:26 Permalink

Canada is already in a deep recession. A housing bubble is not an economy, tho those in it think it is. Once you get away from the housing bubble world, you see people moving into an RV everywhere, job losses, empty stores, bankruptcies, etc, etc. But govt employees and people profiting from the housing bubble are all you hear in the media, so you wont hear whats really going on. All lies, all smoke and mirrors by the govt and media. Much like the US. 

east of eden karenm Thu, 12/14/2017 - 07:33 Permalink

'Canada is currently in a deep recession'.No we are not. Our jobless rate continues to drop, now at 5.9%, down from a crisis high of 7.5%, and going down .1% month over month. Our GDP output has run as high as 4% in the first two quarters and has settled back to 2.7%, or something more sustainable.Our banks are rock solid. Consumer lending in Canada is robust, and fully 87% of the Canadian population have a credit rating above 750, with many being in the low 800's. Matter of fact, American lenders are falling over themselves trying to buy Canadian consumer debt, since the default rates are so miniscule compared to the US.We are bringing in important changes to the taxation systems, debt to gdp in Ontario and Quebec (Quebec has a balanced budget for the first time in decades, and Ontario will reach balance in another year) are dropping like a stone, and we have 150 Billion, Canadian, in reserves in the Bank of Canada.Doesn't sound like a 'deep depression' to me. Who do you work for?

In reply to by karenm

east of eden HRH of Aquitaine 2.0 Thu, 12/14/2017 - 08:30 Permalink

Facts are facts. The only group of people I have ever encountered who hate facts, are conservatives. You know, the ones that sell themselves as 'fiscally prudent' managers of the economy, while they stuff their pockets full of loot before they get discovered and booted out of office, once again. The 60 year 'reign of terror' of the provincial conservatives in Alberta was so 'successfull' that they drained every single dollar out of the heritage fund, and left the province with a multi-billion dollar deficit, that has now surpassed 60 Billion. And they cry. They cry because they ran out of money to steal.There is a reason that there is only a single conservative government, municipally, provincially or federally in Canada right now, and the only reason they squeaked into power in Manitoba (pop 1m) is because the NDP let the province down so badly.So take your insults, you false statements, your pseudo-rhetoric and stick them.

In reply to by HRH of Aquitaine 2.0

afronaut east of eden Thu, 12/14/2017 - 08:02 Permalink

Nope. Sorry sunshine you can spout off all the liberal BS you want. The truth is canadunistan is fucked under liberal control, and likely too far gone Now to ever recover. What I am seeing is closing businesses everywhere, unemployment of young people and skyrocketing prices due to carbon taxes. Blacks and pakis are pouring in by the 10s of thousands. PS. Expanding government does not make for a strong economy. Even if it appears that way temporarily. CanaduH is fucked

In reply to by east of eden

east of eden afronaut Thu, 12/14/2017 - 08:27 Permalink

You know what shit head. Give me numbers. Give me statistics. Give me real data that I can comment on, and not some kind of half assed conservative, pre, pre, pre election mumbo jumbo garbage bullshit.I have nothing more to say to you. I don't deal with dorks, and I especially don't deal with 'plants' who are paid to rable rouse.

In reply to by afronaut

east of eden Kayman Thu, 12/14/2017 - 10:42 Permalink

Let's talk debt-to-gdp, because right now that is the only measure that any reputable government, central bank or economist has talked about for the last 40 years.Contrary to the lies that were put forth in the previous Ontario Election, Ontario's debt to GDp never rose above 47%, and is now much lower. The figures for ALL PROVINCIAL AND FEDERAL DEBT-TO-GDP ARE SHOW HERE:https://www.fraserinstitute.org/sites/default/files/cost-of-government-… shows that in aggregate, all Federal and Provincial debt to gdp is 64%, a figure far, far below that of even Germnay, which comes in at 85%.And those figures are published by the Fraser Institute, known for it's radical conservative bias.So, your argument is a lie, and bullshit. Next,

In reply to by Kayman

TheEndIsNear Thu, 12/14/2017 - 06:46 Permalink

Fake fiat currencies, fake bitcoin, fake boobs, fake education, fake government, fake news, fake everything. At least my gold and silver coins and bars are real and have mass and weight.

east of eden Thu, 12/14/2017 - 06:58 Permalink

Another bullshit article, by the worst of the worst arm of the global one bank BOAM.Oil and gas production constitute less than 7% of Candian GDP, therefore, you can not possibly cast the Canadian dollar as being 'vulernable' on a terms of trade basis. This is simply a new twist on the decades old 'policy' of pidgeon holiing the CAD as a commodity currency, when it is not, and never was. It is also intersting to note that since the run up in the price of oil after it's bottoming a couple of years ago, the CAD has appreciated approximately 5 cents, or 6.8%, which is not out of line at all. We have a better taxation picture, a better financial picture, increasing exports to non-us customers and rock solid month to month increases in reserves at the Bank of Canada averaging 3 billion US, which will soon allow us to meet our intermediate goal of 120 Billion US in reserves before we push on to accumulating 200 Billion, US, in reserves. Like the US Softwood Industry, or Boeing, or US dairy producers, everyone wants a bigger payout from us, but you are not going to get it. Matter of fact, the US Softwood industry levy raised the final demand prices of softwood so much, that our Canadian Forest producers had a huge rise in their net income and a quadrupling of their stock prices in 2017. So, keep up the good work yanks, every time you pull our chain, we become better off.So, just like all the bullshit articles about how a maximum 0.366% reduction in capital will affect Laurentian Bank, when it won't, this is a political piece. It is some kind of a 'warning' that once again the gnomes of Wolfe Street stand ready to start selling naked short CAD contracts into the market. I suspect that is because for once, we are actually standing up to the 'us administration', a.k.a AIPAC.At any rate, like shorting bitcoin, or performing a nuclear attack on North Korea, this is just more of the usual carp from the usual suspects, who think they can continue on doing the same shit, forever.

east of eden iadr Thu, 12/14/2017 - 10:14 Permalink

And I have lived 70+ years in Canada, and have been, since the age of 15, quite politically active, and very politically aware.Don't give me your bullshit about the sad state of truck drivers who no longer make a quarter million a year, eat all the steak and sushi they can stuff into themselves 24/7/365, pay no provincial income tax, fly hookers and blow in for weekend parties, and then complain, constantly, about the terrible people in Central Canada, who loaned them the money for their ridiculous 4,000 square foot MacMansions in Fort McMurray.The last decent conservative in Alberta, arguably, was Peter Lougheed, but he was no particular winner either. So your 'brilliant politicians' created a chronic revenue shortage in the treasury, while simulataneously putting the province on the hook to supply services and infrastructure to new communities whose only reason for existence was because your 'geniuses' thought that 150 dollar a barrel oil was a permanent fixture. So even though Harper raised your transfer payments by 50% over two years, you are sitll critically short of the funds required to maintain what the 'conservatives' created - an unsupportable monster.It isn't like you really have to think that hard about what you do in Alberta. All you sell is oil, wheat and cow/calf products. How difficult can it be to realize and retain the facts that in an economy that is 100% driven by resource sales, that there just might be a lot of times when the prices you get are going to be much less that what you thought you would get. And there you were stupidly rallying for the very people that were responsible for destroying your income base. If you need teaching about budgeting for resource sales, talk to the Mexicans, because they do it 10 times better than you ever did.So tell me, after pumping oil for over 100 years, where did all the money go?You do realize that Norway's sovereign wealth fund is 1.2 Trillion dollars US, and they have only been pumping oil for 50 years.

In reply to by iadr

east of eden Kayman Thu, 12/14/2017 - 10:53 Permalink

anytime I hear someone make reference to 'parasites', I know I am dealing with some fucking goofball who took Ayn Rand too much to heart.If you want to see the real potential for government, banks, industry, insurance and real estate working together at a very high level, for the benefit of all, look at Germany.You would blush if you admitted to yourself that they can outproduce you, out sell you, out budget you, out save you, out invest you, out everything you can do.Oh, but i know, Germany is going to collapse because of all the muzzie's. Right?fuck off.

In reply to by Kayman

east of eden Kayman Thu, 12/14/2017 - 09:55 Permalink

GDP includes ALL production, and it can hardly be 'shrinking' when it ran at 4.0% for the first six months, and government deficits came in 33% lower than the estimates from only a year ago.I live here. I see what people are buying, in grocery stores, malls, every day, and I don't see a particular drop in demand, except for vehicles, which are suffering after many years of above average sales volumes.The immigrants that are coming in to replace the ageing population are raising real families, with real kids, that need real things, and they came with money. A lot of money. The mall and grocery stores are stuffed with merchandise such as I have only ever seen in America, before, never in Canada.The fact is, American's are broke and terrible credit risks. Trump isn't making the situation any better, but he is trying to fight 6 battles simultaneously, so I will give him some latitude. However, that does not escape the fact that Canada, on a relative basis is thriving while the United States continues the race to the bottom. Just ask Jeff Bezos what he thinks of his employees; that will tell you all you need to know about the prospects for the US economy going forward.As for the so called Tax Refrom Bill - the 'greatest tax reform since Regan', well, of course it is all bullshit. It cuts corporate taxes, and the taxes on the wealthy by 5.7 billion over the next 10 years and shifts that tax burder to the middle class, or what is left of it, those making between 50 and 80 thousand, a year. Some reform.Label it what it really is, more theft by the one bank oligarchs.

In reply to by Kayman

east of eden Thu, 12/14/2017 - 07:43 Permalink

So let's do the numbers, shall we. Our current GDP is running 2.7% anunualized. Oil and gas account for 7% of that, or 140 Billion of GDP in a 2 Trillion economy. Assuming, and I have no figures for this, but assuming our oil and gas production is running 20% under where it should be, that comes to a potential 'loss' of 28 Billion, or 1.5% of GDP. That is less than half the increased dollar value of trade we netted with Europe, in just the last 6 months of the year, in goods, services and the initiation of oil exports to Poland. A figure that will no doubt grow by a significant % going forward due to the extraordinarily favourable exchange rate between the CAD and the EUR.And this is being presented to us a exactly the time that Jeffrey Gundlach point out that commodities are at their 8 year cyclical low, and are likely the best investment for 2018.Trumps friends in the neo-con party better sharpen their pencils and bring in some fresh blood, because so far, you arguments fail on economic grounds, fantasticially.Maybe the Trumpettes figure they deserve a 35% discount too, but I don't think that is going to happen, especially when you look at where the US dollar is headed. Every time they pull something like this, it helps us get out of the shackles of US trade constriction and into something much beter. Keep up the good work.

shortonoil east of eden Thu, 12/14/2017 - 08:54 Permalink

 "So let's do the numbers, shall we. Our current GDP is running 2.7% anunualized. Oil and gas account for 7% of that, or 140 Billion of GDP in a 2 Trillion economy."   Oil is one, and for transportation the most essential, commodity that is used in a modern economy. As a result it has a built in leverage of 15:1. Bitumen that cost $80/ barrel to produce, and sells for $57 is not building the Canadian economy. You need to recalculate.   http://www.thehillsgroup.org

In reply to by east of eden

east of eden shortonoil Thu, 12/14/2017 - 09:46 Permalink

As per usual, when dealing with a presumed conservative, you have deflected the point, to prattle on.The story talks about encumbered oil and gas production 'affecting terms of trade in Canadians dollars', when no such thing is going on, or will go on.No one denies that oil is important, however, you should also realize that over the next 30 years, world oil consumption wll be cut from 100 mmb per day to 70 mmb per day, a 30% drop, and that will probably continue, as new technology appears, especially the new battery technology developed by the original designer of the Tesla battery, now working in England, who has discovered a way to charge large batteries in less than 5 minutes, not using lithium-ion, or lithium/polymer.You will have more producers, pumping more oil, for less and less market share, whcih means that prices are going down, not up, or at least they will stay where they are in relative dollar terms.As the impact of our trade deal with the EU and soon with China, start to take hold, more and more of our liability based on the US economy is going to reduce. I suspect, that when the dust finally settles, the US share of our trade will have been cut from 62% where it is now (down from the all time high of 85%), to something around 35%. That is, if they don't go broke or default first. 

In reply to by shortonoil

east of eden Thu, 12/14/2017 - 11:52 Permalink

So some anal-yst was tasked with putting a different spin on a phenomenom that has been occuring every December to March period for the last 50 years? I.E. Canadians, from coast to coast to coast get the hell out of town, to warm weather spots, because the climate, production and sales during that period are signficantly down. This guy is saying 'hey, look, Canadians buy a lot of US dollars in the winter, so let's make up a tall tale and label it 'terms of trade'.Honestly, is that the best your best minds can come up with.