Apparently investors are just lining up to get the Australian dollar off their hands, according to the view of BlackRock, Inc. (NYSE:BLK)’s managing director Michael Trudel. While speaking to the Wall Street Journal’s James Glynn, Trudel said that there is rarely anyone they have met recently who has shown any inclination to go long AUD. We have been following the AUD short story ever since news broke that George Soros could be shorting the Aussie.
AUD: The New Bandwagon
Trudel added that there are a number of noted hedge fund managers who have touted their bearish thesis on the Australian currency. In this respect we have heard Stanley Druckenmiller of Duquesne Capital saying that all commodities and China-related currencies will have a tough road ahead, and AUD is the prime target of bearish calls. In his words, “We think the Australian dollar will come down and come down hard.” Other than George Soros’ possibly massive short in AUD, Ray Dalio of Bridgewater Associates has been among the first to predict how AUD will suffer from slowdown in China, and he is bearish on AUD since the beginning of this year.
Shorts in AUD futures and options on Comex have risen ever since the Reserve Bank Of Australia cut rates on May 7. Hedge fund managers have been juicing the weakness in JPY and now AUD seems to be the hot new target. Shorts in AUD by leveraged funds have jumped to 71,411 contracts, up 55 percent since April 30. The decline in long contracts is equally noticeable, down to 53,775 contracts from 90,423 positions over the same period.
AUD: Further Rate Cuts on the Cards
Trudel added that the possibilty of further rate cuts from RBA are on the table and while BlackRock, Inc. (NYSE:BLK) does not have a downside target, pressure is up on the currency. Goldman Sachs Group, Inc. (NYSE:GS) has also predicted further rate cuts in July and November. RBC Capital Markets has also given similar guidance, citing slower national income and rising unemployment as factors that will influence such a decision.
AUD has declined 7.2 percent against the USD from May 1 to June 5. Had AUD not experienced the jump on June 3, after US reported record low ISM data and USD shook against all emerging markets currencies in response, the decline would have been much stronger.
The headwinds surrounding AUD are obvious, as China cuts down on imports, Australia’s backbone mining industry takes the fall and the chain reaction begins. With falling exports in Australia and the central bank cutting rates, AUD is set to decline even lower. Some speculate that touching below 90 cents to USD could not be too far ahead. AUD fell to below 95 cents in trading today, touching the lowest level in two and half years.
The U.S. is set to release payroll data on Friday—if the strength of recovery in the U.S. is indeed visible then the chances that the Fed will stem quantitative stimulus increase, thereby making the USD stronger and weakening other currencies.