Asset managers are bearish on the Australian dollar and expect the Reserve Bank of Australia to cut interest rates instead of raising them.

Asset managers are accelerating their bearish bets on the Australian Dollar, as they believe the Reserve Bank of Australia is more likely to cut interest rates than raise them. According to data from the Commodity Futures Trading Commission, as of February 27, Real money funds held nearly a record 99,366 contracts of Australian Dollar short positions. Despite the Reserve Bank of Australia stating in the minutes of its February monetary policy meeting that they are considering raising rates to curb prices, citing that inflation is still too high, the short positions continue to increase. Christina Clifton, Senior Economist at ANZ Bank in Sydney, said, "We see a risk of the Australian Dollar falling to around 0.64 against the US Dollar next month." She added, "We expect the Reserve Bank of Australia to cut rates by a much larger extent than market expectations, forecasting a cut of 150 basis points by mid-2025." Last week, the Australian Dollar closed at 0.6527 against the US Dollar. However, the hawkish comments from the Reserve Bank of Australia seem to have not caught the attention of traders, who expect the central bank to cut rates later this year rather than hike them. Australian economists have also brought forward their predictions of the Reserve Bank of Australia easing monetary policy from the fourth quarter to the third quarter, citing a slight downward revision in inflation estimates. Real money funds may hope that the Australian GDP data for the fourth quarter, to be released on March 6, will increase market expectations of further rate cuts by the Reserve Bank of Australia, putting further pressure on the Australian Dollar. Economists forecast that the growth rate for the last three months of last year will slow to 1.4%, compared to 2.1% for the previous year. Additionally, the decline in iron ore prices, one of Australia's major exports, is also affecting the Australian Dollar. Last week, iron ore prices fell to a four-month low. While asset managers have valid reasons for their bearish stance, some strategists still believe that there is limited downside for the Australian Dollar. Alvin Chen, Head of Asian Foreign Exchange Strategy at RBC Capital Markets in Singapore, said, "Given the continued strength of the US Dollar, I believe the Australian Dollar will fall to 0.64 in the coming months." He also stated, "Due to the Reserve Bank of Australia continuing to take a more hawkish policy stance than the Federal Reserve, and China further stimulating its economy, the downside for the Australian Dollar will be limited."