An increasing number of traders thinks the US dollar will strengthen (USD, DXY)

An increasing number of traders thinks the US dollar will strengthen (USD, DXY)

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Phil Cole/Getty Images

Currency traders continued to flock to the US dollar last week.

According to ANZ, citing the latest Commitment of Traders (COT) report released by the US Commodity Futures Trading Commission (CFTC), net US dollar long positioning against a basket of major currencies continued to swell last week, leaving it at the highest level seen since late August.

And that trend likely continued in the latter parts of last week, suggests ANZ.

“Leveraged funds bought USD for the second consecutive week by a further $US 1.6 billion to take their net USD longs to $USD 10.8 billion,” wrote Irene Cheung and Rini Sen, currency strategists at the bank.

“Since then, net USD longs might have been extended on the slew of firm US data, with positions likely to have been pared only modestly after the slightly weaker-than-expected payroll numbers on Friday.”

The COT report captures positioning at the close of business each Tuesday, providing a slightly dated snapshot of position adjustments made by currency traders.

Net positioning, as referred to in the analysis, is simply the sum of long positions less short positions held by leverage investors.

ANZ looks at positioning among leverage investors as it is “commonly seen as a proxy for speculative positioning as they seek to profit from movements in the asset price as opposed to hedging business activities”.

In other words, it could be used to extrapolate broader market views on where a currency is heading.

Here’s how current positioning in the US dollar compares to levels seen in recent years, overlaid against movements in the US dollar index. The chart is from ANZ.

USD implied speculative positioning anz Oct 10 2016Phil Cole/Getty ImagesAccording to ANZ, the influx into the US dollar was largely due to traders adding to net short positions in the euro and British pound.

“Net EUR shorts increased by $US 1.4 billion to $US 13.4 billion, while net GBP shorts rose by $US 1.2 billion to $US 6.2 billion, the highest since early March,” notes ANZ.

“Price action since then suggests a further buildup of short GBP positions.”

The bank also notes that “leveraged funds also pared back in net long JPY positions by $US 600 million to $US7.4 billion, reversing part of the JPY buying in the previous week.

For commodity-linked currencies, including the Australian dollar, ANZ notes that leveraged funds were a net buyer of $US500 million of commodity currencies as a whole, “but it was a mixed bag”.

“They raised their net CAD shorts by $US 500 million to $US 2.1 billion, but increased their net AUD longs by $US 1.1 billion to $US 2.1 billion. They were broadly flat in NZD, maintaining net NZD longs of $US2 billion,” wrote ANZ. “All three currencies have since lost ground on the back of USD strength.”

Here’s what all that looks like in table form, courtesy of ANZ.

CFTC positioning Oct 10 2016Phil Cole/Getty Images

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