Traders are betting the RBA's easing cycle is over

While debate among economists as to whether the RBA will cut interest rates further continues, it appears FX traders are voting with positioning — they’re scaling back Australian Dollar shorts.

ANZ, commenting on the latest movements in the CFTC’s commitment of traders report, revealed 23,000 Australian Dollar short positions were unwound in the week to May 5. The reduction left net short positioning at 19,500 contracts — the lowest level seen this year.

Here’s a chart showing the change.

And here’s ANZ’s commentary on the sizeable reduction in short positioning.

“Post the widely expected rate cut to 2.0% in the cash rate, the RBA released a statement that dropped an explicit easing bias. The price action post the RBA meeting suggests that the market is convinced the easing cycle is over”.

While speculators are only a fraction of global FX flows and positioning remains short rather than long, should their views be adopted by the broader market, it could create a headache for the RBA who, in their May monetary policy statement, suggested “further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”.

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