Asian FX bulls firm as investors bet on rates peaking; eye cuts ahead-Reuters poll

By Rishav Chatterjee

(Reuters) – Bullish bets firmed on most emerging Asian currencies as expectations of an end to U.S. interest rate hikes triggered an easing in the greenback, boosting investors’ appetite for riskier assets, a Reuters poll showed on Thursday.

Long positions on the Taiwanese dollar, the South Korean won and the Singapore dollar strengthened, according to a fortnightly poll of 10 analysts.

Sentiment towards riskier Asian currencies has improved in recent times as market participants bet on U.S. dollar weakness after the U.S. Federal Reserve’s latest economic projections indicated an end to the interest-rate hike cycle.

The dollar sank to a fresh four-month low after the Fed left interest rates unchanged on Wednesday and said the historic tightening of monetary policy was likely over with inflation falling faster than expected and a discussion of cuts in borrowing costs coming “into view.”

“The FOMC’s pivot to internally discussing rate cuts at its last meeting for 2023 (from rate hikes before) has pushed USD-Asia down sharply. It looks like Asian currencies will end the year 2023 on an optimistic note again like they did in 2022,” analysts at HSBC wrote.

Bullish bets on the Philippine peso also firmed.

Most of the responses were received before the Bangko Sentral ng Pilipinas kept its benchmark interest rate steady at 6.50% for a second straight meeting, but signalled policy would stay tight for longer to bring inflation back to target.

Data from Thailand, the Philippines and South Korea last week showed that inflation eased in November, likely providing central banks a little breathing room in terms of rates.

In contrast, data from India showed retail inflation in November rose at its fastest pace in three months, bolstering bets that the Reserve Bank of India will not ease interest rates anytime soon.

Short positions on the Indian rupee were at the lowest since late July. The investors turned slightly bearish towards the Thai baht after briefly turning bullish on the currency a fortnight ago.

Bearish bets on the Chinese yuan and the Malaysian ringgit also eased.

The Chinese economy has struggled to mount a strong post-pandemic recovery as the deepening housing crisis, local government debt concerns, slowing global growth and geopolitical tensions have curbed momentum, and the flurry of policy support measures have proven only modestly beneficial.

“With the fear of the Fed now out of the way, the remaining common headwinds for Asian currencies in 2024 are: slowing global growth (as earlier rate hikes start to bite in the advanced economies), US election cycle uncertainty, and downside risks to the Chinese economy,” HSBC analysts added.

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).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE

14-Dec-23 0.02 -0.09 -0.22 -0.05 -0.33 0.34 0.58 -0.22 0.16

30-Nov-23 0.12 -0.05 -0.07 -0.05 -0.13 0.63 0.73 -0.10 -0.1

16-Nov-23 0.77 0.49 0.38 0.77 0.63 0.82 1.14 0.38 0.28

02-Nov-23 1.32 1.18 0.74 1.44 1.31 1.35 1.33 0.96 0.85

19-Oct-23 1.02 1.16 0.84 1.06 1.06 1.21 0.78 0.89 0.67

5-Oct-23 1.17 1.25 0.81 1.00 1.25 0.92 1.08 0.75 1.03

21-Sep-23 1.29 0.94 0.61 0.84 0.98 1.00 1.03 0.64 0.83

7-Sep-23 1.28 1.01 0.30 0.65 0.95 0.79 0.86 0.55 0.57

24-Aug-23 1.42 0.79 0.34 0.77 1.00 0.84 1.18 0.92 0.50

10-Aug-23 0.74 0.68 0.28 0.60 1.12 0.62 0.98 0.75 0.49

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