Traders are making increasingly bearish bets against the Australian dollar

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  • Leveraged investors, including hedge funds, haven’t been this bearish on the Australian dollar in more than two years.
  • While they are growing increasingly pessimistic about the Aussie, they continue to buy the US dollar.
  • Asset managers are also buying the greenback, although net positioning among this group remains short.

Leveraged investors, including hedge funds, haven’t been this bearish on the Australian dollar in more than two years.

According to ANZ Bank, citing data from the US Commodity Futures Trading Commission’s (CFTC) latest Commitment of Traders (CoT) report, net short Australian dollar positions held by leveraged funds swelled by $US1.3 billion last week, leaving bearish bets against the Aussie at the highest level since February 2016.

As seen in the chart below from ANZ, where net leveraged positioning in the Australian dollar moves, the price tends to follow.

ANZ Bank

Net speculative positioning, defined as non-commercial positions in the CFTC data, is the sum of long and short options and futures positions in a particular asset, in this case the Australian dollar.

A net short position indicates that leveraged funds, collectively, are looking for further weakness in the Aussie.

Leverage funds are typically hedge funds and various types of money managers on the “buy side”, including CTAs, registered commodity pool operators or unregistered funds, ANZ says.

Partially explaining why bearish bets against the Aussie are growing, leveraged funds are increasingly bullish on the prospects for the US dollar, adding to long positions for a sixth consecutive week.

“This takes overall net long USD positions to the highest level this year at $US7.3 billion, an increase of $US3.7 billion over the week,” ANZ said.

“All the major currencies were sold by leveraged funds [against the US dollar] with the exception of GBP.”

Asset managers, defined as institutional investors such as pension funds, endowments, insurance companies, mutual funds and portfolio and investment managers, also bought the US dollar for a fourth consecutive week, reducing their net short position in the greenback to $US18.3 billion.

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