(Bloomberg) — Traders are increasingly positioning for the Australian dollar to fall to levels last seen in 2020 as economic data weaken and increased US tariffs look more likely.
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Option trading volume on the Australian dollar versus the greenback on Wednesday surged to the highest in three weeks as the pair hovered not far above 0.6170, its 2022 low, according to data from The Depository Trust & Clearing Corp.
The largest trades involved put options, which gain in value if the Aussie falls. Strikes of 0.60 and lower expiring in April, on their own, saw over a notional billion Aussie dollars of trading. That’s after leveraged funds increased their short Aussie position to 37,708 contracts at the end of 2024, the most bearish since March 2022, according to Commodity Futures Trading Commission data.
“There has been an increase in FX option activity with the Australian dollar versus the dollar hovering near the lows of 2022,” said Con Davelis, head of FX option trading at National Australia Bank Ltd. in Sydney. “Market flow currently feels like the usual importer/exporter demand in FX options.”
If the Aussie breaks 0.6170, macro demand is likely to increase as it “opens the door to a more significant move lower,” Davelis added. The currency dropped as low as 0.5510 in March 2020.
The Aussie is under growing pressure on several fronts. A decline in an inflation measure spurred traders to price in a greater chance the Reserve Bank of Australia will cut interest rates next month. Thursday’s disappointing retail sales data just added to the rate cut case. And worries about further US tariffs under President-elect Donald Trump continue to swirl.
US payrolls due out later Friday may also add to the bearish case, as a strong reading might push up US yields, supporting the greenback but weakening the Aussie.
A slide to 60 cents is conceivable, Macquarie Bank Ltd. strategists in Singapore said. They said it would be likely, for instance, in a scenario where US equities sink on worries about an unfolding global trade war, China’s fiscal counter-stimulus is inadequate, and the RBA is forced to cut rates quickly to support the economy.
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