Currency traders continued to sell the US dollar last week, leaving net short positioning at the highest level in over three years.
According to ANZ, citing data released by the US Commodity Futures Trading Commission (CFTC) on Friday, net short USD positions among speculators increased by $US900 million to $US8.4 billion, leaving it at levels not seen since early 2014.
This chart from ANZ looks at net speculative US dollar positioning against major currency pairs, overlaying the movements against those in the US dollar index, or DXY.
Net speculative positioning, defined by ANZ as non-commercial positions reported by the CFTC, is simply the sum of long and short options and futures positions in a particular asset, in this case the US dollar.
While only positioning reported by the CFTC, the data can be used to extrapolate broader views held by currency traders.
Khoon Goh and Rini Sen, strategists at ANZ, said that most of the dollar selling occurred against the Japanese yen and UK pound.
“Funds decreased their net short GBP and JPY positions by $US2.7 billion and $US1.5 billion to $US400 million and $US3.8 billion respectively,” they said.
The increased prospect of a rate hike from the Bank of England in the coming months likely supported the pound, while the yen continued to benefit from heightened geopolitical tensions on the Korean Peninsula.
However, while traders ditched the greenback in favour of the pound and yen, there were signs of profit-taking in the euro and Australian dollar.
“Net EUR longs were reduced by $US3.6 billion to $US200 million, the largest weekly net selling since October 2016,” said Goh and Sen.
“Commodity currencies saw a third straight week of net selling, led by the NZD and AUD.
“AUD net longs were reduced by $US200 million to $US6.4 billion, despite market optimism that the Reserve Bank of Australia will soon join the tightening cycle.”
Goh and Sen also note that traders sold emerging market currencies for the first time in five weeks which, along with the reduction in euro and Australia dollar longs, indicates that stretched one-way market positioning may be starting to work in the US dollar’s favour after months of relentless selling.
And with the cutoff date for the latest CFTC report coming a day before the US Federal Reserve’s latest interest rate decision last Wednesday, Goh and Sen believe the US dollar may have found some further buying support in the latter parts of last week.
“The CFTC cutoff date was prior to the hawkish FOMC statement on 20 September which saw the Fed keep its dot plots unchanged for this year and the next,” they said.
“With this, market odds of a December rate hike have climbed to around 63% and we are likely to see some paring back in net short dollar positions in the coming week.”
The latest CFTC report will be released on Friday, September 29.