FX COT Update: AUD Bulls Keep on Betting

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This data references the period ending Tuesday,  August 29th.

EURUSD

Non-Commercials reduced their net long positions in the Euro last week selling 1.5k contracts to take the total position to 86.5k contracts. While EUR continues to forge higher ground, demand has stalled at these levels as investors react to ECB’s Draghi who has warned over EUR strength working against the eurozone economy as well as reports that tapering could be delayed in response to recent strength in the exchange rate.

Traders had been widely expecting the ECB to announce a further winding down of its QE program at its upcoming September meeting this week. However, in light of these recent comments and reports, it seems there is a large risk that bulls will be disappointed as the ECB may keep policy on hold and use this meeting as a further opportunity to talk EUR down.

USD has been back under pressure following the latest employment reports which showed both the headline NFPs and wage-growth both undershooting expectations. Forecasts of a December rate hike, which had been propping USD up earlier in the year, have now been mostly unwound a downside pressure is expected to remain.

GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling 5.6k contracts to take the total position to -51.5k contracts. Sterling has now been net-sold for three out of the last four weeks as growing uncertainty linked to Brexit negotiations, as well as data weakness, have once again emboldened bearish sentiment among investors. On the data front, this week traders will be watching the remaining PMI readings as well as manufacturing and industrial production later in the week alongside trade balance data.

USDJPY

Non-Commercials reduced their net short positions in the Japanese Yen last week buying 5.5k contracts to take the total position to -68k contracts. JPY continues to be steadily bought as safe haven inflows strengthen in response to an escalation in geopolitical tensions. The conflict between North Korea and the US has deepened significantly over recent months, and with both sides warning of the potential for an all-out nuclear strike, there is a high degree of concern among investors who are seeking the safety of their capital in JPY. On the data front this week, as well as PMI data readings we also have GDP and trade balance data later in the week.

USDCHF

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 0.2k contracts to take the total position to -1.7k contracts. Positioning in CHF has remained at very light levels over recent months as upside pressure on EUR has reduced the burden on the SNB and markets await the ECB’s next move. Despite the increased geopolitical tensions dominating markets currently, CHF has not seen a great deal of safe haven inflow which continues a theme which began last year as investors have preferred to stick to JPY for trading risk flows. On the data front, this week traders will be watching GDP and CPI data for 2Q and August respectively.

AUDUSD

Non-Commercials increased their net long positions in the Australian Dollar last week buying 6k contracts to take the total position to 66.5k contracts. AUD has now been steadily bought for three out of the last four weeks reflecting both increased hawkish RBA expectations and diminished Fed rate hike expectations.

While geopolitical tensions undoubtedly cloud the outlook for risk assets, rising commodity prices and better data out of China are combing to keep AUD supported as investors continue to anticipate an RBA rate rise in the near future. As such, traders will be keen to receive the RBA’s latest monetary policy statement this week which is expected to take a further hawkish tone following recent comments by RBA governor Lowe that the next move in Aussie rates is “likely up”. Governor Lowe will also be talking later that day and traders will be waiting for any further clues on the RBA’s outlook.

USDCAD

Non-Commercials increased their net long positions in the Canadian Dollar last week buying 2k contracts to take the total position to 53k contracts. Upside momentum in CAD has stalled recently following some domestic data weakness which has fuelled a re-pricing of BOC rate hike expectations for the remainder of the year.  Oil prices have also taken a turn lower since mid-July which has further dampened bullish sentiment. On the data front, traders will be watching Canadian employment data due on Friday with the unemployment rate for August the headline print.

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