The Reserve Bank Just Caused An Almighty Squeeze In The Aussie Dollar

Getty/ Steven Dunn

Over the past couple of months the price action in the Aussie dollar has been down.

Over the past few days the price action in stocks and emerging market currencies has been lower and the market expected the Aussie dollar to fall.

But it didn’t.

Sentiment is poor and the market has been short Aussie dollars (traders have sold Aussie dollars in the hopes of buying it lower when it falls) for some time with the NAB reporting yesterday that positioning is getting back to the extreme levels of 2013. It’s partly why the Aussie dollar did so well overnight as we discussed here earlier today.

It is also why the Aussie dollar has squeezed from a low today of 0.8728 to a high this afternoon of 0.8892.

Markets don’t like surprises and traders hate them.

So the RBA’s hawkish tone in the statement this afternoon from Governor Stevens caught traders looking the wrong way and they had to scramble.

It’s not about interest rate hikes or the level of Australian growth – it’s just a market caught short.

The irony of course is that the RBA caused this move but said n the statement that the “exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.”

Aussie dollar traders taking the Aussie higher might be caught in a classic short squeeze but the RBA wants the Aussie back where it was this morning – otherwise the RBA’s hawkish tone will evaporate very quickly

VantageFX

Greg McKenna is an active currency trader who has taken advantage of this short squeeze to sell Aussie Dollars

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