The Australian dollar (AUD/USD) fell sharply Friday night to three week lows:
It was also weak on the crosses as risk off sentiment seized markets:
It’s reassuring to know that the AUD still works as counter-cyclical cushion when the heat really comes on.
Positioning on the CFTC fell marginally last week to a modest 13k contracts long:
Plenty of room there for the currency to keep falling.
The fundamental driver is still falling yield spreads which all plumbed new lows Friday. The two year is off its lows this morning at -10bps, the five year is at -17bps and the 10 year is still close to a very rare inversion at 3bps:
With US growth tearing away and Australia’s stuck in its muddle-through, the only way is down for the spreads. Anyone wanting to bet on Australia will have to wear a deepening negative carry.
