Fed easing bets, carry trade unwind turn analysts bullish on Asian currencies: Reuters poll By Reuters

Written by Sameer Manikkar

(Reuters) – Analysts have become bullish on most major Asian currencies for the first time in more than a year, supported by rising bets on interest rate cuts by the U.S. Federal Reserve and the unwinding of yen-funded carry trades, a Reuters poll showed.

A biweekly poll of 12 analysts showed that bets on the Malaysian ringgit have turned bullish for the first time since early February last year, and the outlook has also turned slightly long for the first time since late April last year.

“The rising expectations of a Fed rate cut… have reduced the overall net long positions of the US dollar against foreign currencies in emerging markets in Asia,” said Boon Panitchpipol, market strategist at Krung Thai Bank.

“However, some of the effects of the carry trade unwinding on the yen also accelerated the reduction in net long dollar positions.”

Over the past week, the odds of a 50 basis point rate cut in September have risen to 70% from 22%, with the odds of cuts later in the year also rising, according to the CME FedWatch tool.

However, the Fed is not expected to be as generous in cutting interest rates as the market expects, Goldman Sachs analysts wrote in a note to clients, adding that the dollar remains and is likely to remain a “high-yielding currency.”

“The scope for further USD downside should be more limited from here, or at least moves should become more gradual, and the risks are tilted towards a modest USD/Asia recovery,” they added.

Sentiment on the Malaysian ringgit has been supported by the currency’s strong performance over the past few weeks, supported by a range of factors including strong foreign inflows.

The currency has risen about 6% since mid-July, and more than 7% since late February, when it fell to its lowest level since early 1998.

Expectations of Fed rate easing “have boosted sentiment on the Malaysian ringgit,” Maybank analysts wrote, attracting large inflows of bonds on an unhedged basis likely to participate in the foreign exchange gains, adding to the positive cycle.

Bullish bets on the Singapore dollar have risen to their highest since February last year. Analysts favour the currency due to the city-state’s growth and inflation dynamics, along with a hawkish stance from the central bank.

Elsewhere, analysts turned bullish on the Thai baht and Philippine peso for the first time in about eight months.

In contrast, bets on the Indian rupee and Taiwanese dollar remained bearish, with the outlook for the rupee clouded by continued pressure from margin calls and heavy selling in equities.

The Asian Currency Position Survey focuses on what analysts and fund managers believe are current market positions in nine emerging market Asian currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht.

The survey uses estimates of net long or short positions on a scale of -3 to plus 3. A score of plus 3 indicates that the market is significantly long the US dollar.

Figures include positions held through non-deliverable forward contracts (NDFs).

Below are the survey results (positions in US dollars against each currency):

Date USD/C USD/K USD/S USD/I USD/T USD/I USD/M USD/P USD/T

RW GD DR WD NR YR HP (NYSE:) HB

8-Aug-24 -0.02 0.05 -0.61 -0.02 0.59 0.60 -0.78 -0.29 -0.57

July 25, 2024 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02

11 Jul 24 1.05 0.87 0.06 0.73 0.68 0.22 1.03 0.86 0.51

June 27, 2024 1.34 1.28 0.80 1.49 0.88 0.46 1.00 1.37 0.91

June 13, 2024 0.95 0.87 0.62 1.22 0.64 0.37 1.00 1.23 0.92

May 30, 2024 1.05 0.72 0.33 0.94 0.53 0.00 0.81 1.19 1.00

May 16, 2024 1.05 0.96 0.35 0.96 1.02 0.39 1.23 1.29 1.00

May 2, 2024 1.25 1.61 0.89 1.39 1.40 0.49 1.46 1.44 1.39

18-Apr-24 1.25 1.59 0.80 1.32 1.24 0.43 1.42 1.19 1.28

4-Apr-24 1.18 1.09 0.42 1.13 1.17 0.00 1.15 0.62 1.35

March 21, 2024 0.92 0.82 0.33 0.60 0.92 -0.54 1.12 0.47 1.13