AUD: Extremely negative positioning – ANZ

ANZ analysts point out that the positioning in the AUD has of late been extremely negative.

Key Quotes

“Whether that matters seems to depend on risk sentiment and the degree of correlation across asset markets.”

“Typically, individual currency positioning matters more when asset markets are trading in an idiosyncratic fashion (cross-asset correlation is low). Then negative positioning can be a springboard for strength, as bearish bets are unwound. But this hasn’t been the case for the past 12 months, as the trade war has driven cross-asset correlation higher.”

“The trade theme has dictated market sentiment and by extension the AUD, diminishing the role of individual positioning.”

“As fear of a complete trade breakdown recedes and cross asset correlation starts to fall, the level of positioning may re-emerge as a driver of AUD returns.”