(Bloomberg) — Asset managers are turbocharging bearish wagers on the Australian currency amid views the central bank is more likely to cut rates than raise.
Real money funds held a near-record short Aussie dollar position of 99,366 contracts as of Feb. 27, according to data from the Commodity Futures Trading Commission. That’s even after the Reserve Bank of Australia said it’s still considering raising interest rates to tame prices which remains too high in their view, according to minutes of their February monetary policy decision.
“Over the next month we see the risk of the Australian dollar easing back to around 0.64,” said Kristina Clifton, Sydney based senior economist at Commonwealth Bank of Australia. “We expect the RBA to cut its cash rate much more than the market expects and we are forecasting 150bps of cuts by around mid-2025,” she added. The currency ended last week at 65.27 US cents.
The central bank’s hawkish rhetoric though appears to be falling on deaf ears with swaps traders pricing in RBA rate cuts, not hikes, for later this year. Australian economists are also bringing forward forecasts for the start of the Reserve Bank’s easing cycle to the third quarter from the fourth, citing slight downgrades on inflation estimates.
Real money funds will be hoping Australia’s fourth quarter growth data due March 6 adds to market expectations for more RBA rate cuts, piling further pressure on the Aussie dollar. Economists see the growth rate slowing to 1.4% in the final three months of the year, compared with 2.1% a year prior.
Also weighing on the currency is the declining price of iron ore — one of Australia’s major exports — which fell to a four-month low last week on fading hopes of a rebound in Chinese steel demand following the Lunar New Year holidays.
To be sure, while asset managers have valid reasons for their bearish stance, some strategists see a limit on how much further the Australian dollar can fall.
“I think AUD/USD will head lower to 0.64 in coming months amid an extension of dollar strength,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore. “The downside will be limited to the combination of the RBA continuing to hold a more hawkish policy line than the Fed, and further stimulus in China to support the local economy there.”
Here are the key Asian economic data this week:
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Here’s your comprehensive 3-minute summary of all the things Finance Minister Nirmala Sitharaman said in her Budget speech: Click to download!
