Financial Market

Hedge Funds Bearish on Aussie Dollar Face Employment Data Test

(Bloomberg) — Leveraged funds’ bearish stance on the Australian dollar is being put to the test after US inflation data bolstered the view for a stronger currency.

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The Aussie bullishly rose to an almost eight-week high of 67.17 US cents last week, aided by the softer consumer-price numbers which brought into question how much further the Federal Reserve will have to raise rates. This is bad news for hedge funds, which held a net short position of 27,293 contracts in the week ended Nov. 1, according to the latest data available, the most in about eight months.

The currency may get a further boost this week if Australia’s October employment and third-quarter wage data fuel a more hawkish stance from the Reserve Bank of Australia. Governor Philip Lowe said this month he isn’t on a pre-set path, priming the market for more hikes if needed.

“We see the RBA extending its tightening cycle, while the Fed pauses in the first quarter ahead of a new easing cycle before the end of 2023,” said Rodrigo Catril, a foreign-exchange strategist at National Australia Bank Ltd. in Sydney. NAB expects the Aussie to gradually rise to above 70 cents over the course of 2023.

The median estimate of analysts surveyed by Bloomberg is for the Aussie to climb to 69 cents by the end of 2023.

Covid Zero

Australia’s currency may also get some support from China’s move to recalibrate its Covid Zero policy by reducing the amount of time people entering the country must spend in quarantine.

Still, Aussie dollar bears can take some solace, though, from factors pointing to a weaker currency.

Commonwealth Bank of Australia’s expectation of a global recession in 2023 is not priced in yet, which will ultimately weigh on the Australia dollar through lower commodity prices and greater financial-market volatility, Carol Kong, a strategist at CBA, wrote in client note last week.

The focus now turns to economic data this week to show whether these bearish views will find support. Here are the key releases across Asia:

  • Monday, Nov 14: New Zealand performance services index, India CPI

  • Tuesday, Nov. 15: RBA minutes, Japan 3Q GDP, New Zealand house sales, China one-year medium-term lending facility, industrial production, retail sales, fixed assets ex rural, Indonesia trade balance

  • Wednesday, Nov. 16: Australia 3Q wage price index, Japan core machine orders

  • Thursday, Nov. 17: Australia employment, Japan trade balance, Bank Indonesia rate decision, BSP rate decision, New Zealand 3Q PPI input/output, Singapore non-oil domestic exports, Malaysia trade balance

  • Friday, Nov. 18: Japan CPI, Indonesia 3Q BoP current account balance

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