Himanshi Akand
(Reuters) – Short rates on most Asian currencies firmed to multi-month highs as rising expectations that U.S. interest rates will remain high for a long time dampened appetite for riskier assets, a Reuters poll showed on Thursday.
Bearish positions on the South Korean won, Singapore dollar, Philippine peso and Thai baht rose to their highest levels since mid-October 2022, according to a biweekly survey of 12 analysts.
“Much of the risk premium in emerging markets is small given the extent to which US yields have converged, if not overtaken, so the willingness to have open FX positions in emerging markets with some local fixed income is less compelling,” HSBC said in a note. .
“Much more will be needed for emerging market currency markets to begin to flourish, including for the Fed and major central banks to begin easing and for global growth to move into a compelling recovery,” it added.
Most of the survey responses came before the US Federal Reserve kept interest rates steady on Wednesday.
Chairman Jerome Powell said rate hikes remained unlikely, but he set the stage for a potentially long-term keep in the benchmark interest rate range of 5.25%-5.50%, noting recent disappointing inflation figures.
If the Fed doesn’t cut rates this year, Asian currencies may not get a break and risk seeing another year of depreciation against the U.S. dollar, which has so far been buoyant, analysts say.
Christopher Wong, currency strategist at OCBC, said renewed weakness in the Chinese yuan and yen could also undermine sentiment for Asian currencies.
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Bearish bets on the yuan, which posted a fourth straight monthly decline in April, remained unchanged from two weeks ago.
Investors have lifted their short positions in the Indian rupee after turning bearish on the currency for the first time in four months just two weeks ago.
Short positions in the Indonesian rupiah were the highest in six months, while short positions in the Malaysian ringgit were the highest since July last year.
The rupee has been trading at around 16,200 to the dollar since mid-April and is down more than 4% this year.
Bank Indonesia raised interest rates last week to support the rupiah and intervened to defend the currency amid global uncertainty over the timing of a U.S. rate cut and tensions in the Middle East.
“On the IDR and INR, we continue to expect government intervention to curb volatility if the US dollar strengthens,” said Ryota Abe, economist at Sumitomo Mitsui (NYSE:) Banking Corp.
HSBC analysts said the won and baht could recover more than their peers if the Fed begins a rate-cut cycle in the second half of the year and geopolitical risks are manageable.
The Asian Currency Positioning Survey focuses on what analysts and fund managers believe is the current market position of nine emerging market currencies in Asia: Chinese Yuan, South Korean Won, Singapore Dollar, Indonesian Rupiah, Taiwan Dollar, Indian Rupee, Philippine Peso, Malaysian Dollar . ringgit and thai baht.
The survey uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates there is a significant long position in US dollars in the market.
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These figures include positions occupied by non-deliverable forwards (NDF).
The survey results are presented below (positions in US dollars against each currency):
DATE
02-May-24 1.25 1.61 0.89 1.39 1.40 0.49 1.46 1.44 1.39
April 18, 24 1.25 1.59 0.80 1.32 1.24 0.43 1.42 1.19 1.28
April 4, 24 1.18 1.09 0.42 1.13 1.17 0.00 1.15 0.62 1.35
03/21/24 0.92 0.82 0.33 0.60 0.92 -0.54 1.12 0.47 1.13
03/07/24 0.84 0.54 0.25 0.53 0.64 -0.59 1.14 0.52 1.05
February 22-24 0.70 0.40 0.20 0.20 0.70 -0.40 1.30 0.30 1.10
February 8, 24 0.40 0.39 0.41 0.40 0.32 -0.17 1.07 0.28 0.72
January 25-24 0.37 0.90 0.28 0.51 0.49 -0.18 1.21 0.50 0.90
01/11/24 0.18 0.30 0.02 0.19 0.05 -0.15 0.72 0.09 0.03