FX traders are doubling down on further declines in commodity currencies

Commodity currencies are under the kosh at present, weighed down by a stronger US dollar, weakness in commodity prices, lacklustre economic data and, in the case of Canada, a surprise rate cut from the Bank of Canada. The Australian, New Zealand and Canadian dollars all fell to fresh six-year lows last week.

Unsurprisingly given the moves last week, currency traders are betting increasingly large sums that they will remain under pressure in the period ahead.

According to ANZ, using the latest CFTC speculative positioning report, the number of short positions in the Australian, New Zealand and Canadian dollars continued to swell last week.

The table below shows the latest change in speculative positions recorded by the CFTC. Short positions, in essence bets for further declines, rose by 10,000 (AUD), 900 (NZD) and 6,500 (CAD) contracts respectively for the three currency pairs last week.

Here’s the net speculative positioning for the Australian dollar, overlaid against the movement in the AUD/USD spot price.

And for the New Zealand dollar, a particularly bearish chart if we do say so ourselves.

And finally, for the Canadian dollar.

While these movements suggest that further declines in commodity currencies may eventuate in the period ahead – certainly traders are making increasingly large bets that they will – it also presents an opportunity for contrarian investors given extreme levels of short positions being accumulated across the commodity currency bloc.

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