Investors are bearish on the Canadian dollar, with net short positions rising to their highest level in nearly five years

Brad Bechtel said: "With inflation remaining stubborn and growth sluggish, the Canadian dollar bears base remains large. The market has been shorting pro-cyclical G10 commodity currencies this year, including the Australian dollar, Norwegian krone and Canadian dollar."

USD/CAD fell to a new 19-week low last Friday (December 22), before falling back to 1.3266, a weekly decline of 0.81%, marking the second consecutive weekly decline.

Investors are ramping up bearish bets on the Canadian dollar, lifting net short positions to their highest level in nearly five years, according to a report from the US Commodity Futures Trading Commission.

Data show that bets on the Canadian dollar by leveraged funds increased to 51,971 contracts in the week ending December 19, the highest level since January 2019 and up from 37,707 contracts a week earlier.

Brad Bechtel, global head of foreign exchange at Jefferies LLC, a prominent Wall Street investment bank, in New York, said: "With inflation remaining stubbornly and growth sluggish, the Canadian dollar is still heavily short. The market has been shorting pro-cyclical G10 commodity currencies this year, including the Australian dollar, Norwegian krone and Canadian dollar."

The Canadian dollar lagged behind major mainstream currencies this quarter. Canada's economy unexpectedly contracted in the third quarter and is on track to narrowly avoid a second straight quarter of decline. Still, Bank of Canada Governor Tiff Macklem said policymakers still need evidence of easing inflation before they can start considering a rate cut.

Technically, USD/CAD has fallen below the long-term trend line support area that has been held since June 2021. USD/CAD is expected to fall to the psychological level of 1.3200 next.

In terms of Canadian dollar futures, the main force of the Canadian dollar closed at 0.7548 on Friday, an increase of 0.11%. The weekly increase was 0.96%, marking the second consecutive weekly increase.