(Bloomberg) -- Traders are mostly sticking to their near-record wagers against the loonie, betting that a rapidly slowing Canadian economy and a dovish central bank will deepen the currency’s 2024 decline.

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Hedge funds and asset managers hold a roughly $12 billion short bet against the Canadian dollar in the latest Commodity Futures Trading Commission data, for the week through Aug. 20. That’s down from a $14 billion position in early August, a record in data going back to the 1990s, which has been trimmed a bit amid a three-week loonie rally. The bet against the loonie is still triple the size of the next biggest currency short: against the Swiss franc.

A softening outlook for Canada’s economy, in part because of recent weakness in oil, is underpinning the gloom. The country unexpectedly lost jobs in July, leaving the unemployment rate the highest in more than two years. Inflation, meanwhile, has cooled to the slowest since 2021, cementing bets that the Bank of Canada is set to ease for a third straight meeting.

That would come before the Federal Reserve delivers the first of its anticipated rate cuts, later in September. Fed Chair Jerome Powell solidified expectations for that move in a speech Friday, sending the greenback diving broadly, while the loonie was among major currencies to surge.

“I’m a little surprised that the dollar has reacted so poorly to Powell conceding what markets already anticipated,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “But I have to think that the squeeze on the significant accumulation of short Canadian dollar positions in July and August is now getting very real for those bearish Canada positions and is helping the Canadian dollar push on.”

Also driving the weak loonie outlook is a broader slowdown in growth outside Canada. A Citigroup Inc. gauge of global economic surprises is around the lowest since 2021, indicating data releases have been worse than expected. And US job gains were just revised lower by the most since 2009, a worrisome sign for Canada given how intertwined the two economies are.

It may bode poorly for the loonie, which tends to trade in concert with expectations for global growth and commodities, given that energy is Canada’s biggest export. Futures on West Texas Intermediate crude touched the lowest since January this week.

At around C$1.3510, the Canadian dollar is down some 2% versus the greenback this year. Among Group of 10 currencies, only the beleaguered yen and Norway’s currency have weakened more. Its gains in August have come as the US dollar has weakened broadly on the view the Fed is poised to start lowering rates.

--With assistance from Anya Andrianova.

(Updates with latest CFTC data.)

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