Why Traders Are Getting Increasingly Bearish On The Australian Dollar

Fears of a recession have reportedly led fund managers to wager the most bearish bets on the Australian dollar since March. According to Bloomberg, hedge funds and traditional asset manager peers have accumulated short positions on the currency worth 61,405 contracts, as per Commodity Futures Trading Commission data compiled by Bloomberg.

Price Movement: The Australian dollar (AUD) has fallen over 4.5% since the beginning of the year against the U.S. dollar. At present, the currency is trading close to the 1.408 level against the greenback, close to its three-month highs.

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What Happened: The U.S. Federal Reserve’s aggressive rate hikes and expectations of potential rate increases down the line led by upbeat July jobs data are likely to weigh on the currency.

Benzinga’s Take: The Australian central bank expects inflation to peak later this year and then decline back towards the 2–3 percent range. “The Board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path,” the apex bank had stated. The RBA hiked its rates by 50 bps in its last meet.

At the same time, market participants expect another 75 bps rate hike by the Fed in its upcoming September policy, especially given the upbeat jobs data. Wednesday’s consumer price index release will be a big deciding factor. Unless other central banks catch up with the curve, downward pressure on their currencies against the U.S. dollar is likely to persist.