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Chinese yuan short bets hit record high on slowdown fears, Fed policy

Short positions on the Chinese yuan touched their highest on record and bearish bets on other Asian currencies surged on worries over an economic slowdown in China and aggressive policy tightening in the United States, a Reuters poll found.

The yuan has tumbled in recent weeks on fears over the economic fallout of strict COVID-19 lockdowns in the country. Many global investment houses have also downgraded their yuan forecasts in the recent weeks.

This poll, which surveyed 11 economists, was concluded before the U.S. Federal Reserve’s decision to raise interest rates by 50 basis points on Wednesday.

“China’s economy faces multiple challenges, including its COVID Zero policy, a crackdown on tech and other private sectors, and a real estate (sector) weighed by heavy debt and weak home sales,” DBS analysts wrote in a note.

“The domestic factors driving the CNY’s depreciation are intact.”

Market participants also raised their short positions on the South Korean won KRW=KFTC to their highest since August 2019, while bearish stance on the Taiwan dollar TWD=TP touched a near seven-year high.

“Those currencies most exposed to a weaker Chinese economy and weaker trade, including Taiwan and (South) Korea, have felt the most pressure,” Mitul Kotecha, senior EM strategist at TD Securities said.

Investors also reversed bullish bets on the Indonesian rupiah IDR= for the first time since March to hit their highest since April 2021, while the bearish position on the Singapore dollar SGD= was at its peak since July last year.

Jakarta stunned markets by announcing a ban on palm oil exports last month. However, industry officials believed the move was unlikely to last more than a month because of limited infrastructure.

Market participants also raised their short positions on the Thai baht THB=TH to its highest since August 2021.

Thailand’s economy was expected to grow 3.5% this year, down from an earlier projection of 4.0%, the prime minister of the Southeast Asia’s second-largest economy said earlier this week, noting how the Russia-Ukraine war could slow the economies of the country’s trading partners.

The feeble view on Asian currencies also comes as the U.S. dollar rose steadily to come close to near 20-year highs en route to the outcome of the Fed hike.

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).
Source: Reuters (Reporting by Indranil Sarkar in Bengaluru; editing by Uttaresh.V)

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