The Aussie dollar has come off about 2% over the past week against the U.S. dollar, after reaching a nine-month high of USD0.7947 on Nov. 26, leading many traders to think it will be the forerunner to a global dollar correction, according to John Altadonna, a spot fx trader at Banc of America Securities in New York.
The Aussie is usually the first currency to go, noted Ronan Donohoe, head of fx options trading at Deutsche Bank in London. But he does not think it will lead to an across-the-board correction just yet. "If we see intervention by the European Central Bank and Bank of Japan, it will definitely lead to a capitulation," he said. "Until then, it will range straight because the overall theme in the market is the [U.S.] dollar weakness."
The trading activity was driven by funds which, over the past three to four months, accumulated large positions on the Aussie dollar and have liquidated them.
Mark Mullet, global head of fx derivatives at BofA in New York saw both speculators and hedgers buying one-month or shorter Aussie puts with strikes at USD0.77, punting the Aussie will retrace after its uptrend.
Aussie interest rates, which are higher than in the U.S., have helped the Aussie dollar to appreciate, Mullet said. And the general U.S. dollar weakness has also played a role in the currency's rise. "I think the U.S. dollar will continue to weaken after some sort of correction," he said.
Altadonna predicted the value of gold, Australia's third biggest commodity, would appreciate, increasing the value of Aussie dollars.