Market News

(Bloomberg) -- Leveraged funds have taken their short positions on the New Zealand dollar to a record high, betting that a recent rebound in global oil prices may exacerbate domestic economic pressures.

Leveraged funds' net short positioning in the kiwi increased by 1,907 contracts to 29,582 contracts in the week to July 14, a record in Commodity Futures Trading Commission data going back to 2006. While asset managers trimmed their net short positioning, they remained near the most bearish on the currency since December, the data show.

The bearish positioning contrasts with a recent rally in the currency, which has been driven by a hawkish Reserve Bank of New Zealand. The bets also reflect anxiety among some investors over New Zealand's energy-importing economy after escalating tensions between the US and Iran pushed crude prices back above $90 a barrel.

The oil shock threatens to further worsen the country's trade balance, which narrowly avoided a deficit last month, while domestic consumer spending slipped.

"New Zealand's economy seems to have been flat in 2Q, and the recent return of higher oil prices is another macro headwind," said Andrew Ticehurst, a senior rates strategist at Nomura in Sydney, noting downside for the currency. It "amounts to a negative terms-of-trade shock, given New Zealand is totally reliant on oil imports," he said.

The short positioning is surprising, however, as it was anticipated some bearish bets would have been covered following the confirmation that the RBNZ's hiking cycle is underway, Ticehurst said.

The kiwi edged up to 58.54 US cents on Monday, strengthening about 3% since the RBNZ's hawkish policy decision on July 8. The currency has gained versus all its Group-of-10 peers over the period.