Australian dollar may rise

Currency speculators in the Chicago futures market grew more bullish on the Australian dollar in the week ending March 15, data from the Commodity Futures Trading Commission showed on Friday. According to the International Monetary Market futures data from the CFTC, net long positions in the Australian dollar - effectively bets the currency will rise in value - increased to 54,141 contracts from 51,953 contracts the previous week.
It was the second highest on record and barely 1,000 contracts from the all-time high earlier this year. With the market positioned at such extreme levels, the currency could be vulnerable to a correction lower, analysts say.
"The two positions that look scary going forward are the Aussie and sterling," said T.J. Marta, senior currency strategist at RBC Capital Markets in New York. "We'd say the Aussie is more vulnerable."
Australian economic data is patchy, Marta said, and ahead of another widely anticipated rise in US interest rates next week, traders are looking to unwind carry trades.
So-called "carry trades" involve borrowing in low-yielding currencies to invest in higher-yielding ones. With overnight Australian interest rates at 5.75 percent, the Australian dollar has been a big beneficiary of such trading strategies.
But with the Fed likely to raise overnight US rates to 2.75 percent on Tuesday, so that gap narrows more and more.
IMM traders scaled back their net long sterling positions only slightly, to 37,824 contracts, but that was from a five-year high of 41,127 contracts the week before.
The biggest positioning shift was in the Canadian dollar, where net long positions jumped to 26,150 contracts from 3,329 contracts the previous week.
"A very large build out in speculative long positions supports the argument that the move on dollar/Canada was related to hot money flows," HSBC analysts said in a note to clients. The greenback slid against the "loonie" in the week to March 15, although it managed to hold above C$1.20.
Overall, the net US dollar short position against the six major currencies - the euro, sterling, yen, Swiss franc, Australian and Canadian dollars - grew to 142,841 contracts from 106,186.
Although it is growing, the net short position is still not at an extreme level to suggest the dollar is poised for a sustainable rally any time soon, said RBC Capital's Marta.
"We're getting there, but we're not there yet," he said.
The data from the CFTC's Commitments of Traders report on speculative positioning are sometimes used by analysts as an indicator of future market direction.
For example, extreme net long speculative positions often signal a decline in the currency going forward, especially if that position conflicts with the positioning of the more influential commercial players.
"Long" positions are effectively bets a particular asset will strengthen, while "short" positions are effectively bets it will weaken.