Fresh data that sheds light on the speculative currency market shows more traders are betting on a softer Australian dollar outlook.

The data is compiled and presented by the CFTC under its its weekly Commitment of Traders report. The report shows data on the positions of IMM futures - from this we get an idea of where momentum in various currencies is headed. For example, with traders increasing their ‘long’ exposure to the US dollar we have seen the basis for recent USD strength.

“The most recent IMM data continue to show an increase in USD positions with aggregate exposure totalling an estimated USD36.4bn—a rise of USD5bn from last week. The increase came mostly at the expense of the JPY and AUD,” says Shaun Osborne at TD Securities in Toronto.

Indeed, one of the most striking elements of the latest report is that the Australian dollar is seeing more selling interest in anticipation of forthcoming weakness.

“There was a significant shift in positioning in the AUD where there was a near 20k contract swing from net longs last week to net AUD short of –13.3k contracts. The shift can probably be tied to positioning ahead of the June 2nd RBA meeting where investors looking for an easing bias were on the wrong end of this trade,” says Osborne.

FOCUS: The Australian vs New Zealand Dollar Outlook

While the outlook for the Aus dollar is implied to be negative by speculative market data, we are fully aware that there are opportunities for AUD strength in some quarters of the market.

The New Zealand dollar is one currency that could under-perform the Australian dollar in coming sessions.

We have reported on previous occasions that AUD-NZD is forecast by some institutions to rise; the most recent note on such a move coming being issued by Bank of America Merrill Lynch.

We get another such suggestion, based on technical analysis, from Swissquote Bank in Geneva.

In their most recent Weekly Market Outlook piece Swissquote reckon the AUDNZD cross has completed a bull flag pattern indicating further upside potential.

“Plus given the underlying fundamentals we suspect that further bullish momentum should be anticipated. While Australia’s economic condition is weak, on a relative value basis it should outpace New Zealand,” says Swissquote’s Market Strategist Arnaud Masset.

Fundamentally, expectations for next week’s RBNZ rate decision is relatively balanced between no change and 25bp cut in the official cash rate. If a cut is delivered we see this as being a significant negative for the NZ dollar’s outlook.

Currency rates remain highly sensitive to central bank policy and interest rate cuts are an all-out negative for exchange rates.

At the April meeting the RBNZ indicated if "demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target", we could expected lower interest rates.

Since then demand has been clearly decelerating as commodity prices weaken and regional exports slowed further. Merchandise exports dropped to 4.17bn as trade deficit rose to -2624m.

Headline inflation rate has dropped to new all-time lows at 0.1% y/y (significantly below the RBNZ target rate) on low oil prices.