• Currency speculators continue to shun the US dollar.
• Net short positioning among this cohort has hit the highest level in nearly four years.
• Traders favouring the Japanese yen and commodity currencies such as the Australian, Canadian and New Zealand dollars.

The US dollar remains on the nose with currency traders.

According to ANZ Bank, citing data from the US Commodity Futures Trading Commission’s (CFTC) latest Commitment of Traders (CoT) report, leveraged funds sold the greenback again last week, leaving net short positioning in the dollar at the highest level since May 2014.

This chart from ANZ shows net US dollar positioning overlaid against movements in the US dollar index, or DXY.

Net positioning is the sum of long and short options and futures positions in a particular asset, in this case the US dollar. The CoT report is a snapshot of market positioning at the close of business each Tuesday.

For clarity purposes, leveraged funds are typically hedge funds and various types of money managers including commodity trading advisors (CTAs), registered commodity pool operators or unregistered funds, ANZ says.

Khoon Goh and Rini Sen, FX strategists at ANZ, said the greenback was sold against all major currencies except the euro over the week.

“Commodity currencies saw sharp buying by leveraged funds,” the pair said.

“Leveraged funds turned net long NZD for the first time since October following $NZ1.4 billion of net buying. AUD and CAD also saw net buying of $US900 million and $US600 million respectively.”

Along with commodity currencies, leverage funds also loaded up on the Japanese yen with overall net long yen positions increasing by $US1.2 billion to $US1.5 billion, continuing the sharp reversal since the beginning of the year.

“If the risk-off tone in markets continues, due to concerns over US tariff moves, expect further net buying of JPY on safe-haven demand,” Sen and Goh say.

While stretched short positioning creates the potential for short-covering should the US dollar start to strengthen, the prospect of a widening in the US budget deficit as a result of tax cuts and increased spending, along with uncertainty as to whether proposed tariffs on some imports entering the United States will help to narrow the nation’s trade deficit, has seen many investors shun the greenback despite a recent increase in US bond yields.

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