Hedge Funds Increase Bets on Australian Dollar Ahead of RBA Interest Rate Decision

Australian Dollar Bets Surge Ahead of RBA Decision

Hedge funds are increasing their bullish bets on the Australian dollar (AUD) in the options markets, driven by expectations of a rate hike by the Reserve Bank of Australia (RBA) on March 17.

According to Chicago Mercantile Exchange data, the volume of call options wagering on gains in the AUD versus the US dollar climbed to six times that of puts on Wednesday. Anand Goyal, head of foreign-exchange sales for financial institutions in Asia-Pacific at Citigroup in Singapore, attributes this demand to renewed interest from macro hedge funds seeking upside AUD exposure through call options.

The AUD is expected to benefit from relatively high Australian front-end rates that make it an attractive target for carry trades, as well as growing conviction that the US dollar rally is nearing its end. The currency has advanced about 7% against the greenback this year and 4% versus the New Zealand dollar.

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Trades involving call options of A$150 million ($107 million) or larger were also six times that of their put counterparts on Wednesday, according to data from the Depository Trust and Clearing Corp.

Bank of America Corp. and Barclays Plc are also seeing increased demand for Australian dollar call options against both the US and New Zealand currencies. European investors have been putting on bullish Aussie bets, with a focus on shorter-dated tenors reflecting positioning around near-term event risk.

Key Statistics

• Call options volume: 6 times put options volume
• Trades involving call options of A$150 million or larger: 6 times put options volume
• AUD advance against USD: 7% this year
• AUD advance against NZD: 4% this year

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