It may go down as one of the great currency bets in Australian dollar history – a $US1 billion gamble on a Reserve Bank rate cut that has delivered a $US19 million ($18.65m) profit in 36 hours.
The beneficiary, if you believe the rumour mill, is investment legend George Soros.
Best of all, it appears the 82-year-old American pulled off the deal three times, all with different foreign exchange brokers in Asia, for a tidy profit of almost $US60 million.
Not bad for a bloke who, just three weeks ago, was wrongly declared dead.
Soros is a Hungarian-American business magnate, investor and philanthropist, who has built a reputation over the past 25 years of picking the impact of government decisions on currencies and commodities.
Back in 1992, based on British government policy changes, Soros famously shorted the British pound, by using the German marks as his paired currency, earning a staggering $US1.8 billion profit for his fund. Black Wednesday – September 16, 1992 – is known as the day George Soros “broke” the Bank of England.
The world of foreign exchange trading is a complex one. Unlike selling short a stock, an investor can opt to sell a currency at a future date without needing to physically borrow the currency.
The investor simply enters into an agreement to buy or sell a currency for a predetermined price – a ”short number” or a ”long number” – on a specified future date.
By contracting to sell one currency, an investor is also contracting to purchase another currency, as currencies trade in pairs. When he famously broke the Bank of England, Soros needed to use the German mark to do so.
The action this time started on Monday, when a major foreign exchange (FX) trader in Hong Kong took a $US1 billion placement order for the Australian dollar, a ”short number” of $US1.0373 and a settlement time of 36 hours – just after the RBA announcement.
Those trades were placed via Hong Kong and Singapore, and were believed to be placed by Soros Fund Management.
The Australian dollar was trading at $US1.0320 on spot markets at the time, but fell on the back of bad jobs and retail data.
Brokers – whether they be trading stocks or forex – are talkers. Not long after the $US1 billion was placed, the Aussie dollar slipped from $US1.0284 to as low as $US1.0222 in offshore trade, amid unconfirmed rumours that Soros was planning a raid on the dollar ahead of yesterday’s interest rate announcement.
”Someone … seems to be betting on a rate cut,” said one Sydney-based FX trader yesterday. “I’ve heard the George Soros rumour … a billion dollars sounds like a lot, but it’s not enough to move the Australian dollar and it’s not a lot for George Soros, but there is a play happening in the FX market. If it is him, it’s probably a bet on a rate cut. These days a billion bucks can’t do much to the Aussie.”
Read more: SYDNEY MORNING HERALD