Why Hedge Funds Like the Australian Dollar

Your 'Hit and Run' Currency Trade

Guess who's going long the Australian dollar? Hedge funds, that's who.

Growth has been slowing in China, with GDP hitting 7.4% in the last quarter. Some investors are thinking the bad news will continue, what with Chinese export markets like Europe having troubles of their own. But a handful of hedge funds think the pessimism is overblown, and they have been piling into the Australian dollar, and also to some extent the Norwegian krone and the Swedish krona.

So what do currency strategists think?

"I'd like to join the bandwagon," says Kathy Lien, managing director at BK Asset Management.

Lien told CNBC's Melissa Lee that at 3.25%, Australian interest rates are well above those in many G10 countries, and she agrees that worries about China may be overblown.

But Amelia Bourdeau, irector of foreign exchange at Westpac Institutional Bank, is wary. True, she says, Australia recently opted to keep interest rates on hold and it also had a strong employment report last week, both of which could help the Aussie. But at a macro level, she is concerned about a general trend toward risk aversion that could hurt the currency. "I personally wouldn't do it over the next week, week and a half," she warns.

Lien, though, is not in a rush. She wants to wait for the currency to break above 1.0450 against the dollar. Only then would she enter the trade, with a stop at 1.0350 and a target of 1.0600. "If it breaks above 1.0450, we may have some upside potential," she says.

The moral of the story: be careful with your timing, and then make your move.


Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.

Learn more: The essential vocabulary for currency trading is on Key Terms Dictionary. Top currency strategies are broken down for you in Currency Class.

Talk back: Tell us what you want to hear about - email us at moneyinmotion@cnbc.com.