A potential near-term rate hike from the US Federal Reserve, something that has seen the US dollar strengthen in recent weeks, saw FX traders continue to trim their bets looking for further Australian dollar strength.
According to ANZ, citing the latest Commitment of Traders report released by the US Commodity Futures Trading Commission (CFTC), net long Australian dollar positions held by leveraged investors fell by 12,700 contracts last week, or around $1 billion in dollar terms.
Net long positioning now stands at $900 million, the lowest level seen in 11 weeks.
The chart below from ANZ shows net Australian dollar positioning according to the CFTC data, overlaid against movements in spot AUD/USD.
Net positioning is simply the sum of long Australian dollar positions against the number of short positions held over any one given period.
Although the data is only for leveraged investors, it provides an indication as to sentiment towards the Aussie across the broader market.
Underlining the reason for the continued decline in bullish Australian dollar bets, Irene Cheung, senior strategist at ANZ, notes that traders bought the US dollar with gusto last week, piling into the greenback on heightened expectations that another US rate would arrive sooner rather than later.
“Leveraged funds turned net long in the USD in the week ended 24 May, the first time in five weeks,” wrote Cheung. “During the week, they bought a net US$5.3 billion of the greenback, turning bullish on the USD after the release of FOMC Minutes on 18 May.”
The minutes indicated that a near-term rate hike from the Fed was far closer than what many in markets had anticipated, something that along with hawkish commentary from several leading Fed officials and solid US economic data has seen the market begin to price in the likelihood of two rate increases this year.
The chart below, again supplied by ANZ, shows net US dollar positioning against other major currencies such as the euro, Japanese yen, Swiss franc, Canadian, Australian and New Zealand dollars. After being short the US dollar in the prior four weeks, net positioning is now long, fitting with the uptick in the US dollar index shown in dark blue.
“Net USD buying was broad-based, with the main exception of the GBP where leveraged funds continued to pare back on their short GBP positions against the USD,” noted Cheung, citing recent opinion polls that indicate that a so-called UK “Brexit” from the European Union is now seen as unlikely.
Given that the CFTC data is snapshot of market positioning as at the close of business each Tuesday, Cheung believes that long positioning in the US dollar may have increased even further, fitting with further strength in the greenback in the second half of last week.
“Subsequent Fed speak on a likely interest rate hike in the near term, including Chair Yellen’s speech on 27 May, could have seen leveraged accounts extending their long USD positions further,” notes Cheung.
Updated figures from the CFTC will be released on Friday.