Summary:

  • Net longs on the CAD close to their recent years’ peaks
  • Net long positioning on the AUD almost the highest for years
  • Soybean could have the largest space to build fresh longs among its peers

The latest CFTC report was revealed as usual on Friday and gave CAD traders food for thought regarding persistence of the ongoing upward move. Longs increased as much as 19k in the week ended 25th July to 27k. The rise is really impressive as just two weeks ago there was the net short positioning. Taking a look at the chart below one could assume that a turnaround might be imminent. A rush in building of fresh longs has come in the aftermath of mounting pressure on the BoC’s policy after an interest rate hike which was delivered earlier in the month. What’s more, Friday’s GDP report only backed up that view.

link do file download linkThe net long positioning on the Canadian dollar increased substantially in the prior week achieving all but the highest point since 2012. Source: Bloomberg

As far as the Australian dollar is concerned, there was an increase in the net long positioning as well. The positioning picked up 5k to 56k which is just a step before its record level since 2012. Investors have piled up their fresh longs even though the RBA is by far no in a rush to hike rates in the foreseeable future. Moreover, we pointed out less than two weeks ago that the stronger currency had already tightened financing conditions making a rate increase less needed amid still subdued inflation and wage pressures.

Simultaneously, market odds as for a likelihood of a rate hike this year have stayed fairly low (just a mere 10%). That said, except for better than expected data from the Chinese and Australian economies, key metrics (inflation and wage growth) have been short of the RBA’s expectations, hence there is quite a large probability of a move lower in the AUD given the positioning.

link do file download linkNet longs on the AUD are already at a record level since 2013 building pressure to unwind some of them going forward. Source: Bloomberg

At the end of today’s CFTC report let’s have a look at the soybean market. Even as the net long positioning has increased substantially of late, the indicator for soybean has managed to stay quite low compared with its historical levels. Having said that, there could be a decent buying opportunity as the outlook for the grain has improved looking at the latest WASDE report. So, soybean prices could be undervalued from that standpoint.

link do file download linkThe net long positioning on the soybean remains relatively low in comparison to rises seen in corn or wheat. Source: Bloomberg