Traders are doubling down on renewed strength in commodity currencies

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Currency traders clearly expect commodity currencies to perform well in the period ahead, adding to long positions in the Canadian, Australian and New Zealand dollars in early February.

According to ANZ Bank, citing figures contained in the US Commodity Futures Trading Commission’s (CFTC) weekly Commitment of Traders (CoT) report, there was net buying in all three currencies last week, continuing the pattern seen in the previous three reports.

“Funds added a combined $US1.2 billion to their net long AUD, CAD and NZD positions,” said Khoon Goh and Rini Sen, currency strategists at ANZ.

“Among G10 currencies, leveraged funds have maintained overall net long positions in the three commodity currencies for the third week running.”

Net positioning is simply the sum of purchases less sales in a particular currency by traders.

ANZ uses non-commercial positions reported by the CFTC as they are seen as a proxy for speculative positioning as they seek to profit from movements in the asset price as opposed to hedging business activities.

The increase in long positioning among commodity currencies can be clearly seen in the chart below from ANZ.

It also shows that net long positioning in the US dollar among traders — betting on further strength in the US dollar — continued to be pared last week, falling to the lowest level since October 2016.

“Leveraged funds remained net sellers of USD for the fifth consecutive week,” Goh and Sen wrote. “Funds reduced their net long USD positions by $US1.6 billion to $US13.6 billion.”

While the data suggests that traders are growing wary of further gains in the US dollar, the CFTC data is also somewhat dated, reporting positioning as at the close of business each Tuesday in the US.

Since this report was collated, the US dollar has found some renewed strength, helped in part by comments from US president Donald Trump that he would release details of a “phenomenal” tax reforms within the next few weeks.

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