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Bets Against Canadian Dollar Spike: Report

Just weeks after investment bank Goldman Sachs advised clients to bet against the loonie, global currency traders appear to be doing just that.

Bets against the loonie surged by more than a third in one week, the Globe and Mail reports. According to numbers from the U.S. Commodities Futures Trading Commission, there were $5.4 billion in short positions against the Canadian dollar last week, up by $1.5 billion in a week.

That’s the highest number of bets against the loonie since last spring, when short positions against the currency hit an all-time high.

There are numerous reasons analysts expect the loonie to keep falling, chief among them weakness in resource prices. Canada’s dollar generally tracks commodity prices.

In its report, Goldman Sachs noted that Canada has had a trade deficit — which normally means a declining currency — for the past five years. But the country avoided a sinking loonie because of the strength of its financial system, which attracted a lot of foreign investor money.

That foreign investment has now hit the brakes, Goldman Sachs said, and that’s reflected in a declining Canadian dollar.

A weaker dollar could be bad news for cross-border shoppers and people traveling abroad during the holiday season. Some travel companies are already considering slapping a “currency surcharge” on the price of package vacations. Many of these companies’ costs are in U.S. dollars.

But what’s bad news for travelers could be good news for retailers, who can expect to see more shopping at home if prices in the U.S. are higher for Canadians.

The loonie has been on a downward trajectory for much of the year, hitting its high point for 2013 in January, at above $1.01 U.S., before declining to around the 94-cent U.S. mark in recent weeks.

Some economists have suggested Bank of Canada Governor Stephen Poloz may be intentionally trying to sink the loonie, in order to help Canada's flagging exports. Poloz officially denies this.

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