Leveraged funds are significantly increasing their short positions against the Australian dollar (AUD), reaching levels not seen since March 2022, according to Commodity Futures Trading Commission (CFTC) data. This bearish sentiment is driven by several factors, including the potential for US tariffs and the negative impact of a slowing Chinese economy on Australian exports. The AUD’s sensitivity to risk sentiment makes it particularly vulnerable in the current global economic climate.
The Australian dollar has experienced a decline of over 7% against the US dollar in the past three months, underperforming against all other G10 currencies except the New Zealand dollar. This weakness reflects a broader trend of investors moving away from growth-linked assets. The slowdown in China, Australia’s largest trading partner, further exacerbates the situation, providing additional incentive for traders to sell the AUD.
Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd., describes the AUD as the “whipping boy” for negative developments impacting non-US growth. The substantial increase in speculative short positions during December aligns with the currency’s poor performance throughout the month.
Despite a slight uptick in Asian trading on Tuesday, the overall outlook for the AUD remains negative. Carol Kong, a strategist at Commonwealth Bank of Australia, notes that the bets against the AUD are not surprising given the uncertainty surrounding US policy and interest rates in the coming years. Investors are anticipating potential shifts in US economic policy that could further pressure the Australian currency.
The AUD’s dependence on commodity exports and its close ties to the Chinese economy make it particularly susceptible to global economic fluctuations. As long as these uncertainties persist, the Australian dollar is likely to remain under pressure. The substantial short positions held by leveraged funds indicate a strong belief that the AUD will continue to weaken in the near term.
