Hedge funds are bearish on Aussie dollar

he Australian dollar rose significantly last week to a near eight-week high of 67.17 U.S. cents. That rate was contributed by lower US consumer price data, which questioned the need for further rate hikes by the Fed. This is considered quite a wake-up call for hedge funds which, according to the latest data available, held a net short position of 27,293 contracts, a high in about eight months.

Australia's currency could get a further boost this week if Australia's October employment data and third-quarter payrolls data bolster the Reserve Bank of Australia's more hawkish stance. Chairman Philip Lowe said he would not follow a pre-planned path; instead, he was going to prepare the market for more hikes if necessary.

Rodrigo Catril, currency strategist at National Australia Bank Ltd (NAB) said that the RBA is extending the tightening policy cycle while the Fed may pause in the first quarter of 2023 before starting the easing cycle in late 2023. The NAB expects the Australian dollar to gradually rise above 70 cents over the next year.

The average estimate of analysts surveyed by Bloomberg is that the Australian dollar will rise to 69 cents by the end of 2023.

The Australian currency may also get some support from China's move to recalibrate its Covid Zero policy by reducing the quarantine time that people arriving in the country must spend.

According to Carol Kong, CBA strategist, Commonwealth Bank of Australia's expectation of a global recession in 2023 is not yet factored into prices, which will eventually put pressure on the Australian dollar as a result of more financial market volatility as well as lower commodity prices.