• The bearish shift against the USD that had been observed to-ward the end of September continued into the start of the US gov-ernment shutdown. Investors favored all of the major currencies, as those held short against the USD saw the greatest w/w swings while the remaining majors already held net long also saw a mod-est build. However, specific events impacted AUD—given the Oc-tober 1st RBA meeting, and JPY—given the nascent rise in risk aversion as a result of the increase in political rhetoric related to the US debt ceiling.
• The CAD net short position narrowed $0.5bn to flat, in a move primarily driven by a rise in longs as shorts were held flat. Overall, the steady rise in longs since its June lows is suggestive of a slow build in confidence. For AUD, investors appeared to have contin-ued to pare back FX risk, given the decline in both long and short positions following the RBA meeting and statement.
• While JPY remained the largest held net short, with a -$10.5bn position, an escalation in politically-charged rhetoric relating to the US debt ceiling was a likely culprit in providing a $1.2bn nar-rowing that was completely driven by short covering.
• The EUR net long position rose $0.5bn to $11.5bn, though details suggest a lack of risk appetite as both longs and shorts fell, with the latter exceeding the former.
Read full report: FX Strategy
Scotiabank