While the recent acceleration in US wage growth caught the eye of bond and stock market investors last week, sending stock market volatility to the highest levels seen in many years and bond yields to fresh multi-year peaks, it was not enough to deter currency market investors from deviating from recent trends.
Whether speculators or real money investors, they continued to sell the US dollar.
Here’s the change in net positioning in the US dollar from the latest US Commodity Futures Trading Commission’s (CFTC) Commitment of Traders (COT) report released on Friday.
The chart comes courtesy of ANZ Bank, revealing not only net US dollar positioning, but also net positioning in other major currencies.
Net positioning is the sum of long and short options and futures positions in a particular asset, in this case the US dollar.
ANZ says leverage funds are typically hedge funds and various types of money managers while real money investors are usually institutional investors, including the likes of pension funds, endowments, insurance companies, mutual funds and portfolio or investment managers, whose clients are predominantly institutional.
Irene Cheung and Rini Sen, Strategists from ANZ, said both groups continued to sell the greenback based on positioning reported at the close of business on Tuesday, February 6.
“Leveraged funds remained a net seller of USD during the week, raising their net USD shorts by $US500 million to $US10.6 billion. Asset managers also extended their net USD shorts to another record high, increasing by $US600 million to $US25 billion.
So despite the volatility in stocks and lift in US bond yields, it was not enough to see currency investors warm to the dollar.
While selling was still prevalent from both groups before the CFTC cutoff date, Cheung and Sen say net short positioning was likely trimmed later in the week given renewed strength in the US dollar over the same period.
“A sharp sell-off in the equity market had limited impact on currency positioning during the week,” they said. “However, a continued rebound of the USD after the cut-off date should have seen USD shorts trimmed.”
While many remain pessimistic about the medium and longer-term prospects for the US dollar, stretched short positioning could present headwinds for further weakness in the greenback, especially in the short-term.