The Australian dollar has been getting weaker due to the central bank cutting rates and cutting future growth forecasts, but now positioning hints that hedge funds have reached an extreme short position.
If you’re not familiar, when traders are leaning heavily in one direction, it can lead to some sharp reversals.
The Macro In Short
The Aussie dollar has been hammered lately, and for good reason.
The RBA cut rates last week, taking the cash rate down to 3.6% from 3.85%.
Growth forecasts were downgraded by the RBA from 2.1% to 1.7% for the full year of 2025.
Inflation has cooled to 1.9% y/y down from 2.1%, giving the central bank more reasons to cut interest rates.
All of that weighed on the Aussie dollar, while the ASX got a relief rally. The textbook says: lower rates = weaker AUD… and that’s exactly what we saw.
But will it continue?
Looking at the Commitment of Traders (CoT) reports, non-commercials are holding extreme short positions in AUD.
We’re talking levels far greater than what we saw in August.
It’s now approaching the extreme positioning from April 2024, and back then, that marked a turning point.
When everyone is loaded up on one side of the trade, risk-reward often flips. If shorts start reducing, the squeeze can be aggressive.
Trading angle (not advice, just my view)
For me, I’m looking at AUD/CHF for signs of reversal.
The price of AUD/CHF has been in a constant downtrend, at least that’s the way it’s been since I started trading in 2017.
At the moment the price is trading below the 50 moving average, and is heading lower towards 0.5175. A break of this level could see the price fall towards the April 2025 lows of 0.5025.
However, if the reversal forms, we would need to see the price reject these support points, and even break through resistance, such as the trendline that formed on the highs in May.
Some seasonal backing
I thought I would go take a look at the seasonals of the AUD/CHF market too just to see if there was any confluence around this time of year.
This is what I found:
Over the last 20 years, AUD/CHF has rallied between 21st August and 19th September with a 73.68% win rate.
This pattern has been successful 8 times over the last 10 years, adding some recency validity to this pattern.
So it looks like it to me that there are some variables that could suggest an Aussie dollar rally could form. As with all of the posts, please do your own research and due diligence.
Speak soon!