The rise in not least U.S. yields manifested itself in a massive unwinding of longs in 10-Year bonds in the week to May 7.
Investors thus seem to be scaling down on duration in the bond market in anticipation of higher rates to come and importantly this led speculators to add to longs in USD in the same period (1-7 May). This came at the expense of mainly AUD (as a result of the surprise RBA rate cut, see below) as only minor additions were made to shorts in e.g. EUR, JPY and GBP alike. Thus, at this stage, there are no clear hints that investors are looking to shred other safe-haven currencies in favour of USD on a large scale.
Investors shredded AUD following RBA meeting last Tuesday at which Stevens et al delivered a somewhat surprising rate cut following a weakening outlook for the Australian economy. AUD positioning is now closing in on extreme levels and, from a pure positioning point of view, long positions in AUD/NZD look increasingly interesting -- not least after RBNZ’s Wheeler (a long-standing worrier of NZD strength) said last week that the central bank sold the kiwi as its persistent vigour endangers New Zealand’s recovery.
Another large move was seen in CAD which has long been a favourite short bet for investors but speculators unwound some of their bets against the loonie last week. This move is in fact somewhat surprising given that on May 2 we got some first (soft!) hints on BoC policy going forward from Carney’s successor as governor, Stephen Poloz. While positioning remains stretched for CAD, there is risk that CAD could lose support if Poloz removes the BoC’s long-standing tightening bias.
To Read the Entire Report Please Click on the pdf File Below.