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Highlights
- Hedge funds maintain significant short positions on the Australian dollar.
- Real money accounts reduce bearish bets amidst Aussie dollar volatility.
- Australian dollar hits a five-year low, despite a temporary uptick.
The Australian dollar has faced ongoing challenges in the foreign exchange market, with hedge funds consistently holding negative positions on the currency. According to the latest data from the Commodity Futures Trading Commission (CFTC), hedge funds remained steadfast in their bearish outlook towards the Australian dollar in the week ending January 7. Despite fluctuations in the market, the momentum of negative bets has not shown a significant change among these funds.
Real money accounts, also known as asset managers, appear to have reassessed their stance. While these accounts reduced their short positions on the Aussie dollar, trimming net short contracts from -56,800 to -42,800, hedge funds, on the other hand, kept their positions almost unchanged at -33,800 contracts compared to -33,200 contracts the previous week. As a result, the overall value of combined positions narrowed slightly from a hefty -$9 billion to -$7.7 billion, but this change is not expected to shift the longer-term outlook for the currency.
This reduction in short positions by asset managers was seen as a cautionary sign that the Australian dollar might stage a short-term rally, but events quickly proved otherwise. Despite the minor adjustment, the currency continued to struggle and hit a new low, touching US61.29¢, a level not seen in five years.
Over the course of the reporting week, there were moments of rebound where the Australian dollar rose to US62.30¢ from US61.88¢. However, this rise appeared to be short-lived, as it was preceded by a significant drop to the aforementioned five-year low. The overall sentiment among analysts seems to remain grim regarding the prospects of the Aussie dollar. Sean Callow, a senior FX analyst at InTouch Capital Markets, suggested that the decision by asset managers to reduce their negative positions may not have been aligned with market movements, despite fitting the general price action seen during that week.
As we progress into the new year, hedge funds are likely to continue monitoring key economic factors that could affect the currency. With no signs of drastic change from significant institutional players, such as (ASX:XRO), investors in the Australian dollar should remain cautious about how the outlook on the currency might evolve.
Despite short-term fluctuations, the broader consensus remains largely pessimistic towards the Australian dollar, and the bearish trend in hedge fund positions is a reflection of this broader sentiment.
