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Short bets on Chinese yuan hit record high on slowdown concerns

Short positions on China’s yuan rose to a record as investors piled up bearish bets on all Asian currencies on concerns over a slowdown in the world’s second-largest economy and broadening global price pressures, a Reuters poll found.

Shorts bets on the Indonesian rupiah and India’s rupee both hit multi-year highs, according to the survey of 10 respondents.

Fears that the Chinese economy could shrink in the second quarter and concerns over the U.S. Federal Reserve’s ability to tame accelerating inflation have boosted safe-haven demand and, thus, the dollar, while piling pressure on risky Asian currencies in recent weeks.

The yuan, which is hovering near a 20-month low, has weakened nearly 6% against the dollar over the past five weeks, a notable slide for a currency that is tightly managed and moves in narrow ranges.

Shanghai’s plan to lift most COVID-19 curbs after a weeks-long lockdown appeared to have improved sentiment by a smidgen, but the contingency of such containment measures in other major Chinese cities has added to market anxiety.

Meanwhile, it appears to be becoming harder for the People’ Bank of China (PBoC) to ease monetary policy at a time when the Fed and other major central banks are raising interest rates to control runaway prices.

“Even if the PBoC increases policy support, there is little wiggle room for dramatic easing with the Fed set to enact sharp rate hikes,” economists at DBS said in a research note.

Short bets on the Indonesian rupiah hit their highest since April 2020. The currency has weakened more than 2.5% since the country announced plans in April to ban exports of palm oil – the most widely used vegetable oil.

Indonesia last week reported a fourth straight quarter of economic expansion, benefiting from an historic rise in commodity prices and the lifting of COVID-19 curbs. However, a sharp acceleration in April inflation – the highest since 2017, could prompt Bank Indonesia (BI) to take action when it meets next week.

Analysts at BofA Global Research said they expect a more hawkish message from BI, potentially paving the way for a hike in June or July.

Bearish views on the Indian rupee rose, as soaring inflation amid elevated oil prices raised fears of another interest rate increase in June after a 40 basis point hike in an out-of-turn meeting earlier this month.

The rupee hit a record low against the dollar on Tuesday.

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.
Source: Reuters (Reporting by Harish Sridharan in Bengaluru; Editing by Subhranshu Sahu)

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