3 charts pointing to a recovery in the Aussie dollar

Getty/Mark Kolbe

Bank of America Merrill Lynch has just released its February Fund Manager Survey.

It’s a deep dive into the thinking of 157 global money managers with US$459 billion in assets under management. The survey tells you what investors positions are and what their thinking is.

So it both offers insight and opportunity for contrarian trades – if you are so bold.

In that vein the report contains 2 charts that suggest that the Aussie dollar might be ready for a bounce.

But first a helicopter summary of the overall report:

  • Investors are overweight in stocks with cash at 4.7%.
  • They believe that bonds, not stocks, are the asset class to watch in terms of volatility in 2015.
  • Like the global leaders at Davos in January fund managers are worried about geo-politics.
  • They think QE and falling inflation in Europe is going to work and have upgrading growth expectations for the EU
  • The overall country stock allocations reflect QE expectations with investors overweight in Japan and Europe, having pared back US exposures. Or as BoAML says, “investor optimism/pessimism is now completely in thrall to central bank liquidity policies.”

Getting back to the Aussie dollar the report shows that investors fairly detest Australia as an investment choice relative to history. Positioning is more than 1 standard deviation away from the usual preference/allocation investors have for Australia.

Chart: BofA Merrill Lynch Fund Manager Survey, DataStream

That means they have less invested here then they normally would.

The second chart shows that investors think the long US dollar trade is the most crowded trade on the planet.

Chart: BofA Merrill Lynch Fund Manager Survey,
DataStream

We know via the ANZ that speculative futures position data for currency contracts like the Euro, Aussie and so on confirm that to be the case. Traders are heavily short on these currencies.

The Aussie dollar at 78 cents against the US dollar is hardly strong.

But, this survey suggests that with a crowded US dollar trade and a generalised dislike of Australia as an investment preference, much bad news is already priced in.

At the very least the survey suggests that the recent lows around 76 cents might hold for a while.

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