This is the moment when institutional investors have been most bullish on the Australian dollar since March 2021, as there are signs that the Reserve Bank of Australia (RBA) will keep interest rates at a higher level, and China's economic stimulus measures have restored confidence in the Australian dollar.
Commodity Futures Trading Commission (CFTC) data shows that for the week ending October 8, asset management companies turned into net long positions in the Australian dollar. Prior to this, institutional investors had been bearish on the Australian dollar since February 2023.
The RBA hinted that it plans to keep interest rates unchanged until the inflation rate drops to the target level, a move that is favorable to the Australian dollar, rather than the currencies of those dovish central banks. The improved outlook for China, Australia's largest trading partner, has also helped asset management companies and hedge funds to be bullish on the Australian dollar simultaneously for the first time since May 2021.
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Hong Kong-based HSBC strategist Lenny Jin said, "We tend to be bullish on the Australian dollar rebounding due to China-related selling, unless the 'policy bearish' effect fades." He stated that if other central banks cut interest rates, and the RBA maintains a longer period of tightening policy, the Australian dollar will also be supported.
After China announced its stimulus plan, the Australian dollar rose to its highest level in 19 months at the end of September. However, due to expectations of a smaller interest rate cut by the Federal Reserve, the Australian dollar has fallen by about 2.5% this month.
Asset managers' bullish sentiment on the Australian dollar may be premature, as momentum indicators suggest further declines for the currency. In addition to the uncertainty of China's stimulus measures, upcoming Australian employment and inflation data this month may also trigger caution, as they could affect the RBA's interest rate decisions.
Westpac Bank's head of foreign exchange strategy, Richard Franulovich, said, "It is understandable to turn positions to long, but there are many corresponding risks that must be dealt with in the coming weeks. I prefer to close positions," and to go long on the Australian dollar at better levels, heading towards the support level of 0.6630.