Leveraged Funds Bet Big on New Zealand Dollar's Downfall

According to MUFG Research, leveraged funds have taken out a record short position on the New Zealand dollar (NZD) in data going back to 2006. The latest weekly IMM positioning data shows that as of August 11th, the total short position by leveraged funds is at its highest level ever recorded.

This extreme positioning could indicate skepticism about the Reserve Bank of New Zealand's (RBNZ) ability to deliver 100 basis points of tightening over the next year. However, MUFG notes that while this may be a valid concern, the scale of short NZD positioning is particularly high and sets a relatively high bar for any notable decline in the NZD.

MUFG also highlights a potential flip in terms of trade bias, citing El Nino risks that could lead to higher food inflation over the next six months. This increase in inflation could provide a positive boost to the NZD through improved terms of trade.