Daoming: The next risk facing the US dollar comes from Canadian pension funds increasing their hedging efforts.

According to Jin10 data on June 28, Dominion Securities believes that the US dollar will further decline, as Canadian investors, one of the largest holders of US stocks, are under pressure to increase their currency hedging ratio for dollar assets. “Since the beginning of this year, the safe-haven appeal of the US dollar has decreased, leading to an increased demand for these funds to hedge their long positions in US assets,” wrote Dominion Securities team members Jayati Bharadwaj, Mark McCormick, and Linda Cheng in a report on Friday. A further decline in the US dollar “will further prompt Canadian investors to adjust their hedging policies, which may cause further downward pressure on the currency pair.” In the first half of 2025, the Canadian dollar has risen over 5% against the US dollar, marking the best start in nearly a decade. Dominion strategists predict that the Canadian dollar will continue to rise in the future. They expect that by December, the Canadian dollar will rise to 1.31 against the US dollar, which will be the strongest level since 2022, about 4% higher than the current level of approximately 1.3665. The Dominion team estimates that the hedging ratio of Canadian pension funds—some of which have explicit policies for non-fully hedging US assets—ranges from about 10% to 15%. Overall, Canadian investors hold about $1.8 trillion in US stocks. Analysts wrote that a marginal increase of 5% in the hedging ratio could lead to about $90 billion in selling pressure on the US dollar against the Canadian dollar.