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The unwinding of long NZD positions accelerates

Danske Research Team from Danske Bank A/S at 12/07/09

 


The latest IMM data cover the week from 24 November to 1 December. The IMM report was compiled following the recovery in risky assets last week as fears about the credit situation in Dubai eased. Coinciding with the improvement in risk appetite speculative investors added marginally to short dollar positions, which rose from USD19.5bn to USD22.4bn.
Part of the increase in dollar shorts was placed against the euro, but long JPY positions were also built further to reach 39.5 percent of open interest. However, being short the dollar was an expensive strategy going into Friday, as the much better-than-expected nonfarm payrolls sent the dollar significantly higher. Hence, part of the build-up in short dollar positions is likely to have been taken out in which case the IMM report overstates how short the dollar the market is. Also worth noting in the IMM rapport is the continued divergence within the $-block currencies. While speculative investors added slightly to AUD and NZD longs, the unwinding of NZD positions continued – and even accelerated. Net long NZD positions were scaled back from 53.5 percent of open interest to just 35.6 percent – well below the 81 percent high from September. With NZD positions becoming less crowded the potential for further NZD underperformance is also likely to have been reduced – though from a fundamental perspective the New Zealand dollar still appears overbought.

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