CAD the Next Commodity Casualty?

The Canadian dollar slumped to a 16-month low on Friday. The US dollar was the best performer last week while the yen lagged. Weekly positioning data showed the market was wrong-footed headed into the FOMC. The remaining 2 EURUSD shorts hit all targets, while 1 of 2 GBPUSD longs remain in progress and the other stopped out. All Aussie and CHF shorts remain in progress.

The Canadian dollar joined the commodity currency selloff on Friday after inflation and retail sales data. USD/CAD broke through the 2013 and 2012 highs in a following the numbers, paving the way to the 2011 high of 1.0658, which is two cents above Friday's close.

Comments from new BOC Governor Poloz have revealed little but the impression is that he is relatively upbeat about the Canadian and US economies. That could eventually translate into rate hike expectations but in the near term US dollar strength is the main story.

The theme since the FOMC has been to sell bonds and buy US dollars. The calendar is relatively light around the globe on Monday (although the German IFO survey is an exception). We will be interested to see how the market reacts after a weekend to digest the change in Fed rhetoric.

Commitments of Traders Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +20K vs -7K prior JPY -61K vs -73K prior GBP -20K vs -54K prior AUD -64K vs -63K prior CAD -26K vs -36K prior NZD +2K vs +2K prior CHF +5K vs -21K prior US Dollar Index longs at 14K vs 43K prior

The speculative market gave up on euro and pound shorts just as they were about to pay off. The market leaned away from US dollar longs ahead of the FOMC but likely piled in afterwards. The trimming of JPY positions away from extremes is a reason to think the USD/JPY rally could continue higher.