FOREX-Hedge funds trim risky FX trades as rate-cut bets rise

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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, June 14 (Reuters) - The Australian and the NewZealand dollars fell on Friday as bets on interest rate cutsundermined demand as a Group of 20 meeting later this month keptinvestors sidelined.

Bond futures RBAWATCH imply a 66% probability the ReserveBank of Australia will follow up its recent quarter-point easingwith another in July. If not, a reduction to 1% is consideredcertain by August 0#YIB: .

Markets were also raising bets of a rate cut by the ReserveBank of New Zealand.

"Rising interest rate cut expectations thanks to weak datahas fuelled weakness in the Australian dollar with tradetensions also weighing on demand," said Manuel Oliveri, an FXstrategist at Credit Agricole in London.

The weakness in the Australian dollar has pushed investorsto unwind some of their carry trades, where speculators borrowin a low-yielding currency such as the Swiss franc and invest inrelatively higher-yielding ones such as the Australian dollars.

The Australian dollar/Swiss franc cross, a barometer forsuch speculative bets, has fallen nearly 6% in eight weeks,indicating hedge funds were losing money on such bets.

Elsewhere, the U.S. dollar gained on Friday and was on trackfor its biggest weekly rise in three weeks, before U.S. retailsales data. Sales growth was to reach 0.3% in May compared with0.1% in April.

With investors betting on U.S. rate cuts in the comingweeks, investors are worried that stronger sales might underminesome of those bets and push the dollar higher.

Bond markets are pricing in a 28% chance of a rate cut nextweek, followed by a sure bet at the end of July.

Against a basket of its rivals .DXY , the dollar rose 0.1%to a one-week high of 97.09. (Reporting by Saikat Chatterjee, editing by Larry King) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))

This article appears in: Politics , Fundamental Analysis , Stocks , World Markets , Bonds
Referenced Symbols: EFX ,

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