Currency and rates traders last week took a very different view about where Trump will take the US

The US dollar is struggling in Asia on Monday, threatening to fall to its lowest level since mid-November last year.

That’s probably unwelcome news for many US dollar bulls, particularly those who were buying aggressively last week before this latest bout of selling pressure.

According to data released by the US Commodity Futures Trading Commission (CFTC) last Friday, speculative investors continued to pile into the US dollar, lifting their net long positioning by a further $US2.6 billion to $US19.2 billion, according to ANZ Bank. That’s the highest level in eight weeks.

Source: ANZ

Net speculative positioning is simply the sum of long positioning less short positioning in futures and options in a particular asset. A net long position — as is the case with the US dollar right now — implies that traders, as a whole, expect a particular asset to strengthen.

To ascertain who are speculators and who are not, ANZ uses non-commercial trader positioning as they seek to profit from movements in the asset price as opposed to hedging business activities.

“USD buying was seen broadly with the main exception of the EUR,” said Irene Cheung and Rini Sen, strategists at ANZ. “Same as the week prior, funds reduced their net EUR shorts by $US2.1 billion to $US9.3 billion.”

Net euro short positioning currently sits at the lowest levels since mid-last year.

Of other major currencies, ANZ said that short positions in the Japanese yen and British pound rose for a third consecutive week while those in commodity currencies were mixed.

“AUD saw net buying of $US500 million to take its overall net long position to $US3.4 billion,” said Cheung and Sen.

“There was a net selling of $US3.1 billion in CAD, turning the net CAD position to an overall short of $US2.4 billion.

“Funds also reduced net long NZD positions by $US 600 million to $US200 million, the lowest overall longs since March 2016,” they added.

Since the cutoff date for the CFTC data — Tuesday, March 21 — the US dollar index has fallen by 0.5%, currently sitting at 99.323 having hit a low of 99.263 earlier in the session.

While currency traders — collectively — took the view that the US dollar was likely to strengthen based off recent position adjustments, rate traders expressed a starkly different view, reducing their net short positions in US 10-year treasuries by a whopping 129,400 contracts, leaving net short positioning at the lowest level since November last year.

Source: ANZ

This implies that rates traders, as a whole, were far less certain that yields would continue to push higher last week.

The yield on the benchmark US 10-year note currently sits at 2.364%, the lowest level since February 28. It had been as high 2.63% on March 14.

The unwind in US bond yield and the US dollar fits with renewed investor scepticism that Donald Trump will be able to deliver on his pre-election promises, something that sent the US dollar and bond yields sharply higher in anticipation of faster growth, inflation and rate hikes from the Fed following his election in November last year.

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