The latest data reveals that Australia’s CFTC AUD net positions have dropped significantly. They now stand at $-629K, down from the previous total of $-84.2K.

Bearish Sentiment Towards the Australian Dollar

There is a noticeable increase in negative sentiment toward the Australian dollar. Speculative net short positions have grown considerably, indicating that major market players expect the AUD/USD pair to decline. This level of negative positioning is the highest we have seen in the past year. This perspective is driven by the widening gap in central bank policies. The US Federal Reserve, during its December 2025 meeting, indicated that it plans to keep interest rates high into 2026 to tackle persistent inflation, which currently stands at 3.1%. On the other hand, the Reserve Bank of Australia is grappling with a slowing economy, as Q3 GDP growth reached a mere 0.3%, raising expectations of a rate cut in the first half of next year. Additionally, prices for iron ore, a major Australian export, have plummeted over 10% in the past month, now below $95 per tonne. This decline is linked to reduced demand from China’s struggling property sector. We noticed a similar trend in late 2023 when issues in the Chinese economy led to a weaker Australian dollar. The current situation echoes that time, indicating further risks to the currency.

Strategies for Trading AUD USD

In light of this, we should look for chances to short the AUD/USD, but be aware of how many traders are in this position. Such heavy positioning can lead to sudden reversals if there is any unexpected good news for Australia. Thus, buying put options on the AUD/USD may be a smart strategy, allowing us to profit from drops while limiting potential losses if the sentiment suddenly changes. For traders who believe the currency won’t rise much, selling out-of-the-money call spreads is also a good option. This strategy takes advantage of the negative sentiment and time decay, especially if the AUD/USD pair continues to hover within a range or declines as anticipated. We should pay close attention to upcoming Australian employment and inflation data, as any surprises could quickly change the current situation. Create your live VT Markets account and start trading now.

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