Currency traders were betting big on further Australian dollar strength ahead of the US presidential election.
According to the latest Commitment of Traders (COT) report released by the US Commodity Futures Trading Commission (CFTC) on Monday, net long speculative positioning in the Aussie jumped by $US500 million to $US4.2 billion last week, leaving it at the highest level seen since May.
Net positioning is simply the sum of long positions minus short positions from leveraged investors.
The data captured positioning at the close of business last Tuesday, meaning the increase came before the outcome of the US election was known.
According to ANZ, positioning from leveraged investors, or speculators, is used as it’s “commonly seen as a proxy for speculative positioning as they seek to profit from movements in the asset price as opposed to hedging business activities”.
In other words, it could be used to extrapolate broader market views on where traders believe a currency is heading.
In this instance, large long positioning suggests that traders, collectively, think the Aussie is going to strengthen in the period ahead.
The fact that long positioning now sits at the highest level since May suggests that recent strength in bulk commodity prices, rather than bets surrounding the US election outcome, may have been the main factor behind the recent increase.
Now, like then, iron ore, coking coal and thermal coal prices — Australia’s largest goods exports by dollar value — are going nuts, helping to boost the appeal of the Aussie compared to other major currencies.
While the Aussie has lost around 1.5% against the US dollar since the beginning of last week, it’s actually fractionally higher on a trade-weighted basis thanks to recent gains against the likes of the Japanese yen, Chinese yuan and euro.