Written by Sameer Manikkar
Analysts remained bullish on most Asian currencies, although some pared bets slightly, as a defensive U.S. dollar driven by a dovish Federal Reserve boosted the appeal of risk-sensitive assets, a Reuters poll showed on Thursday.
Long bets were highest on the Malaysian ringgit and the Thai baht, with bets on the latter peaking since January 2023, driven by strong growth fundamentals and policy stability.
The reactions to the weekly poll of 10 economists and analysts came ahead of a half-percentage-point rate cut by the US Federal Reserve and a surprise quarter-percentage-point rate cut by Bank Indonesia on Wednesday.
Expectations of a Fed rate cut have pushed the dollar into a defensive position, providing much-needed breathing space for emerging markets and boosting their appeal. Most Asian currencies have staged a remarkable recovery against the dollar in August.
“We do not rule out further bouts of USD weakness in the coming weeks and expect overall downward pressure on the USD against Asian currencies to continue,” Barclays analysts said.
The pound is heading towards the 100 level against a basket of major currencies, down from the 104 level at the end of July.
Analysts said they expect Asian currencies to continue to rise in the fourth quarter, but expect a reversal in the first half of 2025.
The market view of a rate cut by the US Federal Reserve by the end of the year “seems overdone”, which could lead to a correction in emerging Asian market currencies, said Ryota Abe, an economist at Sumitomo Mitsui Bank.
Bullish bets on the Chinese yuan and Singapore dollar retreated to levels seen four weeks ago, while bets on the Philippine peso hit a four-year high.
Analysts showed strong interest in the Indonesian rupiah for the fourth consecutive time in the survey – the longest since May 2023 – confirming the recent appreciation driven by strong economic fundamentals and increased flows to emerging markets.
The rupiah has risen more than 6% since July and is expected to continue rising after Bank Indonesia’s surprise decision to cut interest rates to support growth, ahead of the US Federal Reserve.
Analysts at Barclays said Bank Indonesia was “likely to be broadly on par with or slightly below the Fed in terms of the size of its overall cuts,” which should not “necessarily lead to a fall in the lending rate in the markets’ favour from a spread perspective.”
The Indian rupee has remained off the radar of analysts, despite short positions having halved since early August, as the currency began to recover after a sell-off driven by the unwinding of yen carry trades.
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
19-Sep-24 -0.67 -0.9 -1.12 -1.18 -0.66 0.33 -1.3 -1.1 -1.33
05-Sep-24 -0.85 -1.09 -1.26 -1.05 -0.77 0.21 -1.46 -1.00 -1.22
22-Aug-24 -0.62 -0.93 -1.08 -1.26 -0.70 0.21 -1.57 -1.03 -1.16
08-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
July 11, 2024 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 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