Key Takeaways
- • Asset managers increased net short Australian dollar positions by 12,901 contracts to 129,065 in the week ending 20 October, a record high and the seventh consecutive weekly increase, according to Bloomberg.
- • Escalating US-Iran tensions and concerns over an AI-driven equity correction pushed investors to reduce exposure to risk-sensitive currencies, with the US dollar regaining safe-haven demand.
- • Leveraged funds moved the other way, adding 2,628 contracts to net long AUD positions and ending four weeks of reductions.
- • The AUD has retreated from a September four-month high to around 70.33 US cents.
- • Swaps markets price a 64% probability of a 25-basis-point RBA rate hike at the 3 November meeting, making Australian inflation data the next key catalyst.
Summary
Asset managers have built their largest bearish positioning against the Australian dollar on record, according to a report by Bloomberg. Net short positions rose by 12,901 contracts to 129,065 in the week ending 20 October, marking a seventh consecutive weekly increase. The shift coincided with a broader selloff in global equities and renewed demand for the US dollar as a safe-haven asset.
Managers attributed the move to escalating US-Iran tensions and concerns over a possible AI-driven equity correction, which have prompted investors to reduce exposure to risk-sensitive currencies. Rodrigo Catril, FX strategist at National Australia Bank, said the combination of heightened geopolitical tensions and the prospect of an AI-related equity correction had strengthened the case for shorting risk-sensitive currencies.
Leveraged funds took the opposite view, adding 2,628 contracts to their net long Australian dollar positions and ending four consecutive weeks of reductions. The currency has fallen from a four-month high reached in September to trade around 70.33 US cents, as investors reassess the outlook for global risk appetite and Australian monetary policy.
The next catalyst is Australian inflation data ahead of the Reserve Bank of Australia's 3 November policy meeting. Swaps markets are pricing a 64% probability of a 25-basis-point rate increase, after Assistant Governor Sarah Hunter indicated that the central bank's efforts to contain inflation were not yet complete. Catril said a stronger-than-expected inflation reading could force bearish investors to unwind short positions, while a softer reading could trigger further Australian dollar weakness.
Managers attributed the move to escalating US-Iran tensions and concerns over a possible AI-driven equity correction, which have prompted investors to reduce exposure to risk-sensitive currencies. Rodrigo Catril, FX strategist at National Australia Bank, said the combination of heightened geopolitical tensions and the prospect of an AI-related equity correction had strengthened the case for shorting risk-sensitive currencies.
Leveraged funds took the opposite view, adding 2,628 contracts to their net long Australian dollar positions and ending four consecutive weeks of reductions. The currency has fallen from a four-month high reached in September to trade around 70.33 US cents, as investors reassess the outlook for global risk appetite and Australian monetary policy.
The next catalyst is Australian inflation data ahead of the Reserve Bank of Australia's 3 November policy meeting. Swaps markets are pricing a 64% probability of a 25-basis-point rate increase, after Assistant Governor Sarah Hunter indicated that the central bank's efforts to contain inflation were not yet complete. Catril said a stronger-than-expected inflation reading could force bearish investors to unwind short positions, while a softer reading could trigger further Australian dollar weakness.
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