Aussie Extends Weekly Gain Amid Speculation Short Bets Overdone

Australia’s dollar rose, extending its first weekly gain against the greenback in six, amid speculation record bets on its decline may be overdone.

The Aussie rebounded from its biggest drop in a week before minutes tomorrow from the Reserve Bank of Australia that could point to the timing of a potential interest-rate cut. The Australian and New Zealand dollars climbed against their 15 major peers before a Federal Reserve meeting this week that may provide clues on when policy makers will begin curtailing quantitative easing. The kiwi dollar touched the highest this month against its Australian counterpart after New Zealand’s consumer confidence climbed to the most in three years.

“Positioning is at record extremes” in the Australian dollar, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. Trading “should remain largely choppy, but there’s a risk of potential short-covering,” she said. A short position is a bet an asset’s price will fall.

The Australian dollar rose 0.5 percent to 96.21 U.S. cents at 5:02 p.m. in Sydney from June 14, when it dropped 0.7 percent, the most since June 7. It gained 0.8 percent last week. The Aussie strengthened 1.7 percent to 91.55 yen.

The New Zealand dollar advanced 0.6 percent to 80.94 U.S. cents, and gained 1.5 percent to 76.97 yen. It was little changed at NZ$1.1894 per Australian dollar after earlier gaining to NZ$1.1850, the highest since May 29.

Record Shorts

Futures traders extended record bets that the Aussie will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission from last week showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie compared with those on a gain -- so-called net shorts -- was 63,277 on June 11, the most in data going back to January 1993.

Loomis Sayles & Co.’s Dan Fuss saw the record short positioning as an opportunity to buy.

“We bought because of the fear and the decline” in the Australian currency, said Boston-based Fuss, who also said he purchased Australian-dollar debt of a U.S. bank.

One-month implied volatility in the Aussie versus the greenback, based on currency options, slipped three basis points, or 0.03 percentage point, to 12.88 percent, after touching 14.54 percent on June 13, the highest in a year.

Australia’s dollar has tumbled 8.4 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

RBA Minutes

Traders are pricing in 39 basis points of interest-rate cuts by the Reserve Bank of Australia within 12 months, according to a Credit Suisse AG index based on swap contracts. Tomorrow’s RBA minutes will be from the central bank’s policy meeting on June 4, when it kept the overnight cash-rate target at 2.75 percent and said the Aussie remains high.

“The main focus of the minutes will be its concern about the exchange rate, which the statement indicated that the RBA would like to see fall further,” Kieran Davies, chief economist at Barclays Plc in Sydney, wrote in a note to clients.

The yield on Australia’s benchmark 10-year government bond rose three basis points to 3.39 percent.

The U.S. Federal Open Market Committee will start a two-day policy meeting tomorrow. Chairman Ben S. Bernanke said last month the Fed may consider reducing its purchases of $85 billion in bonds per month within “the next few meetings” if there are signs of sustainable improvement in the labor market.

“If they come out and say they’re definitely going to start winding back stimulus, then that’s bullish for the U.S. dollar,” said Stan Shamu, a strategist at IG Markets Ltd. in Melbourne. “It’ll weigh on the rest of the risk space.”

The New Zealand dollar was supported after a consumer confidence gauge by Westpac Banking Corp. and McDermott Miller Ltd. climbed to 116.6 this quarter, the most since the three-month period ended June 30, 2010. A reading above 100 indicates optimists outnumber pessimists.

Before it's here, it's on the Bloomberg Terminal.