Mark this chart down as a reason why further gains in the Australian dollar may be hard to achieve from here.
From a post on Twitter from Sean Callow, senior currency strategist at Westpac, it shows net speculative positioning in the Australian dollar from the latest Commitment of Traders (CoT) report released by the US Commodity Futures Trading Commission (CFTC) last Friday.
Wow – leveraged funds' AUD net longs on CME jumped to 71.5k at 8/8, high since Apr 2013 when AUD/USD was 1.05 and about to roll over pic.twitter.com/Nh5EMKDsXR
— Sean Callow (@seandcallow) August 13, 2017
According to Callow, net long positioning among speculators rose to 71,500 contracts as at the close of business last Tuesday, the highest level since April 2013.
A net long position means the market, collectively, is looking for further strength in the Aussie.
The largest long position from speculators in over four years — no wonder the Australian dollar is back above 79 cents, having added close to 10% since the beginning of the year.
The build in long positioning reflects stronger commodity prices, a noticeable improvement in Australian economic data along with a sharp decline in sentiment towards the US dollar courtesy of political gridlock in Washington and a bout of underwhelming US data.
However, while helping to explain why the Aussie is charging higher, the huge lift in speculative long positioning suggests that many traders have already factored this in, meaning that it will likely require a continuation of the current trends to see the Aussie rally any further.
While that may occur, with positioning stretched and much of the good news already priced in, one suspects that it’ll become increasingly difficult for the Aussie to push much higher from here.
And, of course, should any of the recent tailwinds turn to headwinds, it raises the risk that the Aussie could reverse quite quickly as traders book profit from previous gains.
One to watch in the period ahead.
You can follow Sean on Twitter here.