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Commodity bounce supports Aussie
Market Insight – Foreign Exchange – Commodity bounce supports Aussie
11th March 2016
AUD rebounds
On January 18th, concerns over Chinese growth prospects and weakening terms of trade pushed the AUD/USD exchange rate to the lowest level in approximately seven years (30th March 2009). Since 2012, the Australian currency has experienced a relentless decline as the nation’s primary commodity exports of iron ore and coal have suffered from the moderation of Chinese industrial demand. However, in the past two weeks commodity prices and risk sentiment have rebounded from what appears to have been a floor and have supported a 5.8%* appreciation of the AUD on a trade weighted basis (see Figure 1). Recent readings of Australian growth, headline inflation and consumer sentiment have also highlighted the success of existing monetary easing measures and the resilience of the Australian economy in the face of an ailing natural resource sector, contributing further to the AUD’s recent strength. In the coming month, momentum from rising commodity prices and positive risk sentiment is likely to persist, offering further support for the AUD against its major currency counterparts.
Figure 1
(click to enlarge)
Inflation and growth impress
Prospects for the Australian economy look less gloomy following a recent slew of positive data. The latest growth numbers show that during the three months to December, the Australian economy grew by 3%* (on an annualised basis) and inflation rose to 1.7% (Figure 2). Both results surpassed analyst expectations and reflect the success of recent easing measures in mitigating the impact of falling investment and revenue from the nation’s vast mining sector. While in the longer term the economy still faces challenges, in the near term the backdrop looks strong enough to support a continuation of the recent AUD rally.
Figure 2
(click to enlarge)
More easing unlikely in the near term
While the market is currently pricing in further monetary easing this year, it is unlikely that any action will be taken by the Reserve Bank of Australia (RBA) at its April monetary policy meeting. A statement from Glenn Stevens, the RBA governor, made during the last monetary policy meeting explicitly stated that the likely catalyst of any additional easing of monetary policy is “continued low inflation”. With Q1 ‘16 inflation data not due until the 27th April, it is unlikely that the RBA will implement further measures before its meeting in May.
Short positioning to unwind further
Commodity Futures Trading Commission (CFTC) data shows that since mid-February, net speculative AUD positioning turned positive for the first time since September 2014 (see Figure 3). This move has been driven primarily by an increase in speculative longs to multi-year highs and also in part by a fall in speculative shorts. However, speculative shorts remain elevated by historical standards and further unwinding of short positions could support further upside to the AUD against the US Dollar.
Figure 3
(click to enlarge)
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• Top Performer: Defence (+$7.87 billion)
• Emerging Themes: Cybersecurity (+$318 million), Uranium (+$253 million)
European thematic UCITS ETFs posted a dramatic resurgence in the first half of 2025, with net inflows of $8.73 billion year-to-date, according to ARK Invest Europe’s latest quarterly update detailing H1 2025 European thematic ETF flows.
The turnaround marks a decisive reversal from the muted flows of 2024 ($308 million net outflows for the whole of 2024), as investors rotate back into forward-looking, innovation-driven themes with clearer earnings visibility.
Defence remains the dominant thematic allocation, capturing $7.87 billion in combined net inflows between Global ($4.81 billion) and European ($3.05 billion) defence ETFs underscoring its evolution from a tactical trade to a structural portfolio allocation. Maintaining its position as the defining technological theme, AI ETFs saw $904 million in net inflows, with investor appetite fuelled by relentless innovation in large language models, robotics, and autonomous systems.
In the same period, Cybersecurity ETFs continued to rebuild momentum after significant outflows in 2024 ($311 million net outflows for H1 2024), drawing $318 million, reflecting growing investor conviction in cybersecurity as a structural necessity amid rising digital threats.
Clean Energy ETFs saw outflows of $307 million. As policy momentum stalls in key markets, investors are increasingly selective within the energy transition space. Capital is rotating toward subsectors with clearer economic moats, such as nuclear and grid infrastructure. Supporting this sentiment, Uranium ETFs rank fifth at $253 million, reflecting growing investor interest in the nuclear sector as a potential solution to global energy needs.
Healthcare Innovation ETFs recorded net outflows of $279 million. The drawdown reveals investor caution around legacy biotech firms with uncertain drug pipelines and reimbursement risks. Interest is shifting toward AI-driven healthcare platforms offering faster innovation cycles and more scalable business models.
Electric Vehicles and Battery Tech ETFs saw net outflows of $203 million as investor enthusiasm cools amid subsidy rollbacks and plateauing EV demand in major markets. Persistent concerns around battery raw materials and production bottlenecks have further weighed on the theme.
Rahul Bhushan says, “After a cautious 2024, it’s evident that investors are re-engaging with innovation themes that offer clearer earnings visibility and resilience in an increasingly complex macro landscape. We’re seeing investor conviction in megatrends with structural tailwinds, particularly defence, AI, and energy security. Thematics are no longer just tactical bets, they’re core strategic exposures.”
2025/2024 Comparative Study
Thematics are back
After a weak 2024, investor appetite for thematic risk has returned in force:
• H1 2025 total net inflows: +$8.74B
• That’s a sharp reversal from -$791M in H2 2024 and only +$483M in H1 2024
• The rotation is clear: capital is moving back into forward-looking themes with stronger earnings visibility.
Defence is now a structural trade
• Global and Europe Defence saw a combined $7.87B in inflows in H1 2025 and $1.59B in June alone.
• This continues a multi-quarter surge as geopolitical tensions, rising military budgets, and renewed industrial policy drive long-term allocations.
• Defence is no longer a tactical trade—it’s becoming a core exposure.
AI inflows normalise, but conviction remains
• Artificial Intelligence ETFs drew $904M in H1 2025, following $1.47B in H1 2024.
• Inflows may be slowing, but investor conviction is holding firm.
• With earnings delivery now catching up to narrative, AI remains a centrepiece of thematic portfolios.
Cybersecurity shows signs of stabilisation
After brutal outflows in 2024 (-$311M H1, -$260M H2), cybersecurity ETFs finally saw inflows:
• $318M in H1 2025, including $67M in June.
• This rebound suggests investors are once again prioritising digital resilience in an AI-driven world.
Infrastructure themes are quietly regaining traction
• Global and Europe Infrastructure ETFs pulled in $284M in H1 2025, following modest gains in H2 2024.
• Infrastructure is benefiting from government stimulus, defence modernisation, and the reshoring trade.
Uranium’s steady climb continues
• $253M in H1 2025, after $216M in H2 2024 and $67M in June alone.
• Indeed, the $67M in June alone nearly matches the $66M pulled in during the entirety of H1 2024.
• A rare clean energy theme that’s bucking the downtrend, reflecting growing recognition of nuclear as a pragmatic decarbonisation solution.
Clean Energy sentiment is so bad, it might be investable
• Outflows across all periods: -$307M (H1 2025), -$505M (H2 2024), -$409M (H1 2024)
• June 2025: A mere -$8M
• Sentiment is arguably as negative as it’s ever been—yet structural drivers remain in place. The setup for a contrarian rebound is building.
About ARK Invest Europe
ARK Invest International Ltd (”ARK Invest Europe”) is a specialist thematic ETF issuer offering investors access to a unique blend of active and index strategies focused on disruptive innovation and sustainability. Established following the acquisition of Rize ETF in September 2023 by ARK Investment Management LLC, ARK Invest Europe builds on over 40 years of expertise in identifying and investing in innovations that align financial performance with positive global impact.
Through its innovation pillar and the ”ARK” range of ETFs, ARK Invest focuses on companies leading and benefiting from transformative cross-sector innovations, including robotics, energy storage, multiomic sequencing, artificial intelligence, and blockchain technology. Meanwhile, its sustainability pillar, represented by the ”Rize by ARK Invest” range of ETFs, prioritises investment opportunities that reconcile growth with sustainability, advancing solutions that fuel prosperity while promoting environmental and social progress.
Headquartered in London, United Kingdom, ARK Invest Europe is dedicated to empowering investors with purposeful investment opportunities. For more information, please visit https://europe.ark-funds.com/
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