By Himanshi Akhand
(Reuters) – A Reuters poll showed on Thursday that short bets on most Asian currencies rose to touch multi-month highs as growing expectations that US interest rates will remain high for a longer period led to a decline in appetite for riskier assets.
Bearish positions on the South Korean won, Singapore dollar, Philippine peso and Thai baht rose to their highest level since mid-October 2022, according to a bi-monthly poll of 12 analysts.
“Most risk premiums in emerging markets are low when considering how much yields have approximated, if not surpassed, those in the US, so the desire to have open FX exposures in emerging markets is increasing,” HSBC said in a note. Some domestic fixed income instruments are less urgent.” .
“A lot is needed for FX markets to start booming, including the Fed and major central banks starting to ease monetary policy and global growth turning into a convincing uptrend,” he added.
Most of the survey responses came before the US Federal Reserve kept interest rates steady on Wednesday.
Bank Chairman Jerome Powell said interest rate increases remain unlikely, but he set the stage for the possibility of extending the benchmark interest rate in a range of 5.25%-5.50%, citing disappointing recent inflation readings.
Analysts said that if the Fed does not cut interest rates this year, Asian currencies may not get a break and risk seeing another year of decline against the US dollar, which has remained buoyant so far.
Renewed weakness in the Chinese yuan and yen could also undermine sentiment towards Asian currencies, said Christopher Wong, currency strategist at OCBC.
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Bearish bets on the yuan, which recorded its fourth consecutive monthly decline in April, remained unchanged from two weeks ago.
Investors raised their short positions on the Indian rupee after it turned bearish on the currency for the first time in four months just two weeks ago.
Short positions on the Indonesian rupiah were the highest in six months, while those on the Malaysian ringgit were the highest since last July.
The rupee has been trading at levels of 16,200 per dollar since mid-April and has fallen more than 4% so far this year.
The Bank of Indonesia raised interest rates last week to support the rupiah, and intervened to defend the currency amid global uncertainty over the timing of US interest rate cuts and tensions in the Middle East.
“For IDR and INR, we still expect interventions by the authorities aimed at reducing volatility in the event of further strengthening of the US dollar,” said Ryota Abe, economist at Sumitomo Mitsui Banking Corporation (NYSE).
Analysts at HSBC said the won and baht could recover more than their counterparts if the Fed embarks on an interest rate cutting cycle in the second half of the year and geopolitical risks can be controlled.
The Asian Currency Positions Survey focuses on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, the South Korean won, the Singapore dollar, the Indonesian rupiah, the Taiwanese dollar, the Indian rupee, the Philippine peso, and the Malaysian peso. Ringgit and Thai Baht.
The survey uses estimates of net long or short positions on a scale from minus 3 to plus 3. A score of plus 3 indicates that the market is significantly buying the US dollar.
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The figures include positions held through non-deliverable futures contracts (NDFs).
The survey results are shown below (positions in USD for each currency):
date
02 May 24 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
March 7, 2024 0.84 0.54 0.25 0.53 0.64 -0.59 1.14 0.52 1.05
22 Feb 24 0.70 0.40 0.20 0.20 0.70 -0.40 1.30 0.30 1.10
8 Feb 24 0.40 0.39 0.41 0.40 0.32 -0.17 1.07 0.28 0.72
January 25, 2024 0.37 0.90 0.28 0.51 0.49 -0.18 1.21 0.50 0.90
January 11, 2024 0.18 0.30 0.02 0.19 0.05 -0.15 0.72 0.09 0.03