The most successful aspect of the RBA’s recent decision to drop the cash rate to a modern day low of 1.75% has arguably been the changed outlook, and level, of the Australian dollar.
It’s down around 6.5% from its level immediately before the RBA announced its decision on May 3.
That 5 cent move, from 0.7719 to Friday night’s New York close of 0.7219, is also a reflection of changed signals from the US Federal Reserve about US rate hikes together with an unwind of what were substantial long Australian dollar positions held by the foreign exchange speculative community.
HSBC’s FX Strategy team reported over the weekend that this combination meant, “total short USD positions fell to USD3.4bn in the week ended 17 May from USD5.6bn a week earlier, using the cumulative notional USD total of the currency futures contracts that trade on the IMM. Positions across all currencies saw moves in favor of the USD, with the largest shifts being drops in AUD and CHF longs”.
That’s important because the IMM futures positioning data for speculative accounts is widely seen as a proxy for the overall hedge fund and trading community more broadly.
Specifically, the move in positions saw AUD longs (bought AUD) fall from USD2.8 billion to USD1.8 billion which HSBC said was “their lowest level since March”.