(Bloomberg) – Hedge funds are at risk of losing money on their bear Australian dollars, as many negative news may already be at the price of currencies.
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Aussie benefits from mitigating the worst fears of US tariffs and can climb as many as 64.50 US cents if the central bank is surprised by holding interest rates on hold of this week, according to RBC Capital Markets. Westpac Banking Corp. It is leaning with further gains in Aussie in the short term.
“Aud/USD was unexpectedly resistant to repeated tariff shocks, which is a major change in the fourth quarter,” said Richard Frannulovich, head of foreign exchange strategy at Westpac Banking Corp. in Sydney.
The Australian dollar strengthened 2.7% compared to Greenback this year, the third best currency of Group 10, as the alleviation of fears over the global trade war increased the risk property. Aussie has climbed to the latest from December to Friday, before ending last week with 63.52 American Cent.
Currency return is bad news for most Hedge funds, which has had a combined net short position of 44,643 AUD/USD contract since last Tuesday, based on data from the Commission for Trafficking in Commercial Future.
Although it is predicted that Australia’s spare bank will lower its reference rate for the first time since November 2020. On Tuesday, there is no guarantee that would encourage further Aussie weakness.
Market replacement are already priced in more than three decreases of 25 points this year, with 87% likelihood this week. The short -term risk of hedge funds is that RBA is pushing back against these pigeon expectations at the gathering, citing a robust labor market or the potential to add inflation to the larger US tariffs.
Risks at the top
“Since the cut of 25 points is almost completely appreciated, the risks are at the top at AUD/USD in the event of any disappointment,” said Mayank Navalakha, head of foreign exchange options at Australia and the New Zealand Banking Group Ltd. in Singapore.
If the RBA mistakes on the Sokol side and delay the reduction of the rate, Aussie may be powered by as much as 64.50 cents, according to RBC.
“The worst fears of US tariffs seem to be withdrawn that American economic surprises have peaked in November/December, and the US interest rates have withdrawn significantly in the last month, which underestimated the basic support of the US dollar,” he said Alvin Tan, head of the Asian exchange strategy at RBC in Singapore.
