(Bloomberg) -- Hedge funds have increased short bets against Australia’s dollar as soft growth data lift expectations of policy easing and the incoming US administration progresses with its tariff levies.
Leveraged funds boosted their bearish positions on the currency to the most since September in the week ending Dec. 3, according to Commodity Futures Trading Commission data. Institutional asset managers also became the most pessimistic in a month, the data showed.
The Australian dollar slumped the most since July last week, on bets the Reserve Bank could loosen policy early next year amid signs of a weakening economy and concerns over China-US trade tensions. This week, the market will be watching the central bank’s interest-rate decision on Tuesday and the country’s jobs data for clues of potential easing.
The Aussie could sink to 62 cents in the first quarter of 2025 — a level unseen in more than two years — as stimulus measures from China underwhelm and President-elect Donald Trump sparks a global trade war, according to Westpac Banking Corp.
It’s “a challenging combination that can hit Aussie dollar via a potential hawkish repricing to 2025 Federal Reserve rate cut bets and global trade policy uncertainty,” Richard Franulovich, head of currency strategy at Westpac Banking Corp., wrote in a note to clients.
Since Trump won the US election, the Aussie has slumped almost 4% — making it the worst-performing Group-of-10 currency — as the greenback surged amid easing Fed cut bets. Resilience in the US economy and demand for haven assets also helped to boost the dollar, with asset managers trimming bearish wagers to the least in more than seven years.
Australia’s central bank is likely to keep its key rate on hold this week, according to all economists in a Bloomberg survey. Instead, its communication may shift more dovish following the disappointing growth data last week, spurring further weakness in the Aussie, according to Nomura.
Hedge funds increased short positions on Aussie to 9,790 contracts as of last Tuesday, while asset managers held 19,717 such wagers, CFTC data showed.
Holding a short position against the Aussie is warranted as “we expect US tariffs against China to gain focus over coming weeks and months,” Andrew Ticehurst, a senior strategist at Nomura, wrote in a note to clients.
--With assistance from Michael G. Wilson.
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