When Retail Shorts the Aussie, I Look to Go Long

Why I'm bullish on Aussie dollar pairs

Let me start with a question. If the majority of retail traders are heavily shorting a currency and that currency keeps rising, whose side do you want to be on?

The Aussie dollar is in exactly that spot right now. I'm hunting bullish setups across Aussie pairs, and one of the core reasons is retail positioning itself.

Start with the fundamentals: Australia's economy is stronger than expected

The Aussie has held a bullish reading in my macro score for about a month, and the reason is fairly clear.

GDP growth came in better than expected, and PMIs and broader activity data are throwing upside surprises across the Australian economy. Inflation is the interesting wrinkle: Australian CPI came in lower than expected, which is a mild counter-signal — a bearish one — for the Aussie. Even so, the overall picture favors the currency.

The crowd is heavily short the Aussie

Here's where it gets genuinely interesting. Narrow the retail sentiment view down to Aussie pairs and a consistent pattern jumps out.

• EUR/AUD: the crowd is long euro, short Aussie
• AUD/USD: the crowd is short Aussie, long dollar
• AUD/NZD: the crowd is short Aussie, long kiwi

See the pattern? Retail traders are consistently short the Aussie across multiple pairs. And what's the Aussie been doing in the meantime? AUD/CAD, AUD/NZD, and AUD/USD have all been moving higher.

Why I read the crowd in reverse

I use crowd sentiment mainly as a contrarian indicator. It's by no means a perfect one. But retail traders in the currency market have shown a years-long tendency to constantly try to fade trends.

The Aussie is the textbook example. While the crowd stacked shorts against the trend, the trend trampled over them and went higher. That's exactly why I'm more willing to stand on the bullish side of these pairs.

The pairs I'm actually watching

You never look at a currency in isolation — you trade pairs. So the real question is which currency to pair the Aussie against.

I'd avoid going long AUD/USD. Instead I prefer AUD/CAD and AUD/NZD, both of which get stronger readings in my macro score.

I like the momentum on AUD/CAD at current levels, and I'm watching AUD/NZD for a pullback to enter. I actually closed an AUD/CHF long last week, and right now the AUD/CAD setup looks more compelling to me.

FAQ

Q: Does going against the crowd always win? A: No. Crowd sentiment is by no means a perfect indicator. I read it alongside fundamentals, institutional positioning, and technicals. The Aussie is attractive precisely because all three point the same way at once.

Q: Why avoid AUD/USD? A: The US dollar itself is getting a bullish signal from reigniting inflation, so the Aussie's strength could be offset by dollar strength. That's why I prefer pairs like AUD/CAD or AUD/NZD, where the Aussie's relative strength shows through more cleanly.