Traders are betting on renewed commodity currency weakness, but still love the Australian dollar

Photo by Mike Heydon/Jet Productions NZ Limited via Getty Images

Currency traders are turning cold on commodity currencies after buying aggressively at the start of 2017.

Except for the Australian dollar.

According to the latest Commitment of Traders (CoT) released by the US Commodity Futures Trading Commission (CFTC), speculators continued to desert the Canadian and New Zealand dollars last week.

Khoon Goh and Rini Sen, currency strategists at ANZ, said that net short speculative positioning in the Canadian dollar rose by a further $US600 million to $US3 billion as at the close of trade on Tuesday, March 28, leaving it at the highest level since early 2016.

Net speculative positioning is simply the sum of long positioning less short positioning in futures and options in a particular asset. A net short position implies that traders, as a whole, expect a particular asset to weaken.

ANZ uses non-commercial positions reported by the CFTC to gauge speculative positioning as these investors seek to profit from movements in an asset price as opposed to hedging business activities.

This chart from ANZ shows how net speculative positioning in the CAD has switched from being long to short within the space of weeks.

Source: ANZ

Like the change in mindset towards the Canadian dollar, traders have also turned cautious on the prospect for continued New Zealand dollar strength, turning net short for the first time since February 2016 last week.

Quite a turnaround from just four weeks ago when net long positioning among speculators hit the highest level on record.

Source: ANZ

While traders have been unwinding bullish bets towards other commodity currencies, the same can’t be said for the Australian dollar with net long positioning rising by a further $US500 million last week to $US3.9 billion.

As seen in the chart below, also from ANZ, net long positioning in the Aussie remains elevated, sitting near levels that have often heralded a pullback in the AUD/USD spot price in the past.

Source: ANZ

While that does not mean that a pullback may occur on this occasion, it certainly is a risk.

The AUD/USD has weakened on Monday, undermined by falling iron ore prices along with a shock contraction in Australian retail sales in February, among other factors.

It’s currently down 0.3% at .7605.

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