Traders continue to sell the US dollar, with net positioning for the greenback close to turning short for the first time since May 2016.
ANZ’s weekly report, citing information from the US Commodity Futures Trading Commission (CFTC), shows that leveraged funds reduced their net positions in the USD by a further $US2 billion last week.
That marks the ninth straight week of net selling, as the US dollar index fell below 94 on Friday for the first time since April 2016.
Net positioning is calculated by the sum of long futures and option positions less short positions in a particular asset class.
ANZ uses non-commercial positions reported by the CFTC, as opposed to commercial positions in which traders use futures contracts to hedge their business risks.
In other words, they are positions established to profit from an expected movement, in this case the US dollar.
This chart shows the steady decline in US dollar positions since May, with a commensurate fall in the value of the USD index.
The recent weakness in the US dollar follows a string of underwhelming data releases in the US, with consumer sentiment falling while inflation remains stubbornly low.
Political gridlock in Washington has also weighed on the currency, with the time-frame for pro-growth infrastructure spending and corporate tax-cut proposals now uncertain.
US dollar weakness has contributed to the recent strength in the euro. Recent data suggests that the Eurozone economy is starting to turn the corner, while the European Central Bank has indicated that it may consider withdrawing some of its ultra-easy monetary policy at its next meeting in September.
According to ANZ strategists Khoon Goh and Rini Sen, leveraged funds increased their long positions in the euro by $US1.3 billion last week, taking overall net longs in the euro to $US1.4 billion.
Goh and Sen said that net selling of the US dollar was broad-based against the major currencies, with the exception of Japan and China.
“Leveraged funds increased their net short JPY positions for the fourth consecutive week by USD1.7bn to USD9.7bn, the highest net shorts since August 2015. Funds also reduced their net CHF longs by USD0.6bn to USD0.5bn,” they said.
The two analysts said that net long positions in the major commodity currencies increased for the eighth straight week.
Among the commodity currencies, gains were led by the Aussie dollar which rose significantly in value last week. Net long AUD positions rose by $US1.3 billion during the week to $US4.2 billion.
Given that the cut-off for CFTC positioning was last Tuesday, the AUD most likely had further net-long positioning later in the week as it pushed towards US80 cents.
Funds also turned net-long on the Canadian dollar for the first time since March, following a rate hike from the Bank of Canada which was accompanied by more hawkish sentiment.
The CFTC data shows it was also a big week for emerging market currencies, let by net-long positioning in the Mexican peso.
“Net MXN longs were increased further to USD2.9bn, the highest net longs since May 2013,” said Goh and Sen.