Asia FX bearish bets firm as cenbanks catch-up to Fed tightening
Bearish bets on most Asian currencies firmed, a Reuters poll found on Thursday, as several regional central banks trail the U.S. Federal Reserve in tightening their monetary policies to fight red-hot inflation.
Analysts turned short on the Chinese yuan CNY=CFXS for the first time since early-October due to worries of an economic slowdown in the country caused by COVID-19 lockdowns, the fortnightly poll of 14 respondents showed.
“A combination of a lack of policy support and zero-COVID stance has weakened China’s growth prospects and weighed on yuan sentiments,” analysts at Maybank wrote in a note.
Southeast Asian central banks have sought to balance lifting interest rates off historic lows — to tackle price pressures exacerbated by the Ukraine war — and supporting economic growth as the region emerges from a coronavirus-driven downturn.
Market participants raised short positions on the Malaysian ringgit MYR= to their highest since late-August, while the position was the largest since early-December in case of the Thai baht THB=TH.
Thailand’s central bank said last week it will focus monetary policy efforts on shoring up sluggish growth in Southeast Asia’a second-largest economy, as it continued to see inflationary pressures as transitory.
Bearish bets were also raised on the Taiwan dollar TWD=, Indian rupee INR=IN and the Philippine peso PHP=.
The dim view on emerging market currencies comes against the backdrop of a steady rise in the U.S. dollar amid expectations of more rate hikes from the Fed. The currency hit a two-year peak against a basket of currencies this week.
“Asian currencies have generally faced pressure this month as U.S. yields have moved higher, helping propel the USD, and capital outflows from the region have accelerated,” Mitul Kotecha, senior EM strategist at TD Securities said.
“It’s hard to see any turnaround in Asian currencies unless U.S. yields take a decisive turn lower and in turn the USD reverses course more broadly.”
Bets on the Indonesian rupiah IDR=ID inched closer to a bearish territory after the country’s central bank cut its 2022 economic growth outlook amid risks from inflation and geopolitical tensions.
Meanwhile, short positions on South Korea’s won KRW=KFTC rose and long positions in the Singapore dollar SGD= were cut despite central banks in both countries recently tightening their monetary policy.
The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.
The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.
The figures include positions held through non-deliverable forwards (NDFs).