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USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

Justin McQueen, Strategist
  • USD Buying Resumes
  • NZD Longs Increasingly Stretched
  • GBP Rallies Face Hurdles

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

In the latest reporting week to September 28th, USD buying resumed with net long positioning rising by $1.95bln to $15.66bln. This was in part related to the hawkish FOMC meeting where the Bank not only announced that tapering will most likely take place in November, but the shift in the dot plots was also much more hawkish than expected with the committee split 50/50 for a rate hike as soon as next year. Additionally, month-end rebalancing would have likely featured with traders front-running the anticipated USD buying. That said, this had been concentrated against low yielders given the pick up in global bond yields, subsequently, the Euro, JPY and CHF saw outflows of $1.66bln, $0.99bln and $0.3bln respectively.

Elsewhere, buying persisted in the Kiwi among both leveraged funds and real money accounts. Eyes this week will be on the expected rate lift-off from the RBNZ, however, as I have said previously a lot of the hawkishness has been priced into the rates market, which in turn raises the bar for the central bank to surprise on the hawkish side. As such, this ties into my top trade for Q4, which is bullish AUD/NZD. The rationale behind the trade is stated here.

The Canadian Dollar saw a modest reduction in net shorts as gains in the energy complex help shield the Loonie from the rally in the greenback. Looking ahead, risks are tilted to the upside for the Canadian Dollar as markets grow increasingly bullish on the oil market and thus I prefer to play CAD upside on the crosses, as opposed to the USD at present.

Net longs in the Pound picked up slightly (+$0.188bln), although this is at odds with the recent price action, which saw GBP among the underperformers amid the wash out of leveraged positioning. To add to this, the current stagflation narrative for the Pound has not helped sentiment. Going forward, I will be keeping a close eye on BoE rhetoric given how aggressive BoE tightening has been. As such, I suspect we are in a market where rallies in the Pound will be sold into. Key resistance situated at 1.3600.

Weekly FX Positioning

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

Source: CFTC, DailyFX (Covers up to September 28th, released October 1st)

The Analytical Abilities of the COT Report

How to Read the CFTC Report

US Dollar Positioning

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

Source: Refinitiv, DailyFX

USD/CAD Positioning

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

Source: Refinitiv, DailyFX

NZD/USD Positioning

USD Buying Resumes, NZD Longs Stretched, CAD Shorts Reduced – COT Report

Source: Refinitiv, DailyFX

If you would like to receive the full COT FX breakdown, contact IG.

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