Some of those Hedge funds were kind enough to supply us with an explanation of their speculation on the value of the Aussie, here are some of their scenarios:
• Aussie will be traded below 70 cents by mid-2018, if the nation’s bonds will falls below that of U.S. Treasuries.
• The Aussie is likely to stay above 70 cents due to China’s strong economy, and due to the expectation of commodity price to increase in value.
• The RBA may start rising interest from all time low (1.5%), reducing the house-price growth. According to this scenario, if the unemployment rate drops from 5.4% (19.12.17) to 5%, then the RBA is expected to increase interest rates.
• If China growth will continue its stable track and won’t slow down, then the Aussie is supposed to reduce its decline.
• U.S and Australia have the same interest value, standing at 1.50%bps, which means that IF Australia premium on “Australia Government bonds 2 & 5years yield” will trade below the “U.S Government bonds 2 & 5years yield” the Australia interest rate will weigh in the currency more than other factors.
Key point to remember:
• According to the CFTC report, hedge funds reduced their long positioning almost by half, from 86K to 44K.