Bets against loonie hit record high

TD Bank is forecasting the Canadian dollar will drop to 90 cents US by early 2014, a prediction that comes alongside reports of investors betting against the loonie in record numbers.

Economists say falling commodity prices, lingering low interest rates and modest Canadian economic growth will push the loonie to levels not seen since 2009.

“We have significantly revised our forecast, with the loonie hitting a low of 90 US cents in early 2014,” TD Bank said in a recent report.

The loonie hit a high just above $1.05 US in both April and July 2011, and stayed above parity until early 2013. The dollar was trading at about 97 cents US on Tuesday.

As the loonie moves lower, investors appear to be losing confidence in the currency, by increasing their short positions.

Recent data from the Commodity Futures Trading Commission shows the total value of short positions against the Canadian dollar have increased in recent days by $400 million to $7.4 billion, the highest amount on record, according to reports.

More investors are returning to the U.S. dollar, in hopes its steady economic recovery will hold. It’s one of the reasons the price of gold plunged to two-year lows last week, before recovering slightly this week to about US$1,410 an ounce.

Economists say a pickup in the U.S. economic recovery will continue to weigh on the Canadian dollar in the next few months, alongside weakness in Canada’s market-heavy resources sector.

“So, commodity prices are forecast to be lower; the Bank of Canada won’t be tightening policy in the near future; the Canadian economy is expected to deliver only modest growth this year – and to underperform that of the U.S. … All this augurs for a lower Canadian dollar, not to mention the fact that the loonie is overvalued as indicated by the large current account deficit and capital account surplus,” TD Bank economist Dina Ignjatovic said in a recent report.