Currency traders continue to pull their bullish US dollar bets

Photo by Jamie Squire/Getty Images

Currency speculators continue to yank their bullish US dollar bets, reducing net long positioning for a seventh consecutive week last week.

According to ANZ, citing the latest Commitment of Traders (CoT) report released by the US Commodity Futures Trading Commission (CFTC) last Friday, net long positioning in the greenback fell by a further $US200 million to $US4.5 billion, leaving it sitting at the lowest levels since mid last year.

The chart below from ANZ shows the unwind in bullish US dollar wagers seen in recent months.

Source: ANZ

Net speculative positioning, defined by ANZ as non-commercial positions reported by the CFTC, is simply the sum of long and short options and futures positions in a particular asset, in this case, currencies.

When net positioning is short, it suggests that the market, as a whole, is looking for price weakness. Long positioning indicates that the opposite outcome is expected.

Khoon Goh and Rini Sen, strategists at ANZ, the dollar selling last week was most pronounced against commodity currencies such as the Australian, Canadian and New Zealand dollars.

“Commodity currencies were in strong demand, led by the Australian dollar (AUD),” the pair wrote on Monday.

Net AUD longs rose by $US800 million to $US2.4 billion, while those in the New Zealand dollar increased by $US300 million to $US2.2 billion.

Speculators have now bought the Kiwi for seven consecutive weeks, leaving net long positioning at the highest level since February this year.

Net long positioning in the Canadian dollar also rose by $US100 million, although, given the cutoff date for the CFTC data was last Tuesday, Goh and Sen believe this may have increased following the release of strong Canadian jobs data on Friday.

The Bank of Canada (BoC) meets on Wednesday this week with markets currently pricing in around a 90% probability that the bank will lift interest rates for the first time since late 2010.

Outside of commodity currencies, traders also bought the euro but sold the UK pound and Japanese yen.

“Funds continued to hold overall net short positions against the euro despite positive price action in the single currency,” said Goh and Sen, adding that net short positions were reduced slightly by $US100 million to $US1.4 billion.

Net GBP short positioning rose by $US100 billion, outpaced by a $US1.4 billion increase in short positions in the Japanese yen.

While the data only captures positioning reported by the CFTC, it is often used as a guide to broader market sentiment among currency traders.

The recent decline in net long positioning in the greenback also fits with the price action in the US dollar index, or DXY.

It’s fallen 7.5% in recent months, driven largely by strength in the euro which has added over 10% from the low of 1.0339 struck on January 3.

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