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FOREX-Hedge funds trim risky FX trades as rate-cut bets rise

Reuters | Updated: 14-06-2019 13:21 IST | Created: 14-06-2019 12:44 IST
FOREX-Hedge funds trim risky FX trades as rate-cut bets rise
The Aussie fell 0.24% to $0.6892 and was down 1.5% for the week, the biggest decline since mid-May. The Kiwi dollar dropped 0.4% to $0.6529, down 2% for the week. Image Credit: Pixabay

The Australian and the New Zealand dollars fell on Friday as bets on interest rate cuts undermined demand as a Group of 20 meetings later this month kept investors sidelined. The Aussie fell 0.24% to $0.6892 and was down 1.5% for the week, the biggest decline since mid-May. The Kiwi dollar dropped 0.4% to $0.6529, down 2% for the week.

Bond futures imply a 66% probability the Reserve Bank of Australia will follow up it's recent quarter-point easing with another in July. If not, a reduction to 1% is considered certain by August. Markets were also raising bets of a rate cut by the Reserve Bank of New Zealand.

"Rising interest rate cut expectations thanks to weak data has fuelled weakness in the Australian dollar with trade tensions also weighing on demand," said Manuel Oliveri, an FX strategist at Credit Agricole in London. The weakness in the Australian dollar has pushed investors to unwind some of their carry trades, where speculators borrow in a low-yielding currency such as the Swiss franc and invest in relatively higher-yielding ones such as the Australian dollars.

The Australian dollar/Swiss franc cross, a barometer for such speculative bets, has fallen nearly 6% in eight weeks, indicating hedge funds were losing money on such bets. Elsewhere, the U.S. dollar gained on Friday and was on track for its biggest weekly rise in three weeks, before U.S. retail sales data. Sales growth was to reach 0.3% in May compared with 0.1% in April.

With investors betting on U.S. rate cuts in the coming weeks, investors are worried that stronger sales might undermine some of those bets and push the dollar higher. Bond markets are pricing in a 28% chance of a rate cut next week, followed by a sure bet at the end of July. Against a basket of its rivals, the dollar rose 0.1% to a one-week high of 97.09.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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