The market hasn't been this upbeat on the Aussie dollar in 4 years

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If you thought that rising geopolitical tensions on the Korean Peninsula would be enough to discourage traders from buying the risk-sensitive Australian dollar, think again.

As shown in the chart below from ANZ, traders, seemingly, aren’t all that concerned with net long positioning among speculative investors hitting the highest level since early 2013 last week, according to data released by the US Commodity Futures Trading Commission on Friday.

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 the Aussie dollar.

While this only captures changes in positioning reported by the CFTC, it can be used to extrapolate broader views held by currency traders during a specific period.

That means the market, collectively, hasn’t been this upbeat on the Aussie dollar in well over four years.

That’s a remarkable performance given the cutoff data for the latest CFTC data was Tuesday, August 29, the same day North Korea fired a missile over the northern Japanese Island of Hokkaido.

“AUD remains in demand with net long positioning rising for the twelfth consecutive week to reach its highest level since April 2013,” said Khoon Goh and Rini Sen, strategists at ANZ.

Rather than focusing on geopolitics, the continued buying frenzy in the Aussie likely reflects strengthening commodity prices, along with continued uncertainty over the outlook for US interest rates, something that has weighed on the US dollar this year, especially in recent months.

Indeed, reflecting just how downbeat traders have become towards the greenback, net short speculative positioning rose by a further $US1 billion to $US8 billion last week, according to the CFTC, leaving it at the highest level since May 2014.

Based on those movements, traders are clearly taking the view that the US dollar is likely to weaken further in the period ahead, helping to underpin further gains in other major currencies, including the Aussie dollar.

However, while that’s the collective view, Goh and Sen say that short US dollar positioning is “starting to get extreme”, warning that “further downside for the USD could be limited”.

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