By Himanshi Akhand
(Reuters) – Bearish bets on most Asian currencies have risen to multi-month highs as the prospect of a U.S. interest rate cut this year continues to boost demand for the dollar, while the threat of potential U.S. tariffs undermines the appeal of risky Asian assets, according to Reuters. A Reuters poll showed. showed on Thursday.
Short bets on the Chinese yuan rose to their highest levels since June 2023, while bets on the Malaysian ringgit and Indonesian rupiah reached a seven-month high, according to a bi-monthly survey of 13 respondents.
The yuan, which is trading near 16-year lows against the dollar, is seen as most vulnerable to a stronger dollar and heavier tariffs under the administration of US President-elect Donald Trump.
China is also Southeast Asia's largest trading partner, and a weaker yuan could impact regional currency markets.
Ahead of Trump's inauguration on January 20, markets turned away from Asian assets as his policies of tax cuts, increased tariffs and tightened immigration are likely to boost US prices, bond yields and the dollar.
Moreover, the Fed's expectations of two rate cuts for 2025, half of what it had estimated earlier, have now led markets to fully price in just one 25 basis point rate cut in 2025, with a 60% chance. To lower interest rates. Second reduction.
Higher US interest rates and the dollar's yield advantage could stimulate capital outflows in emerging Asian markets and weaken their currencies.
“The external environment may constrain the extent to which Asian central banks can ease with the FX weakness in Asia that we have seen since the beginning of the Fed's cut cycle,” DBS analysts said in a note.
The US central bank has cut interest rates by 100 basis points since September.
DBS added that there is a conflict in the domestic and external priorities of Asian central banks and that less export-oriented economies may see less price volatility.
Short positions on the Taiwanese dollar reached their highest levels since May 2024.
Bearish bets on the Indian rupee, which recorded its ninth consecutive weekly decline last week, were the highest since July 2022.
Short positions in the Singapore dollar reached their highest levels since October 2022.
“While Singapore could be directly protected from escalating US tariffs, it will remain highly vulnerable to indirect impact through slower global growth and spillovers from China's slowing exports,” Citi analysts said.
Citi's base case is for the Monetary Authority of Singapore (MAS) to ease policy settings in January due to recent deflationary trends and challenges to growth resilience.
The South Korean won is currently the most shorted Asian currency, according to the survey. It had its worst annual decline in 16 years in 2024 as government efforts to boost the market were overshadowed by signs of slowing exports and domestic political unrest.
The Asian Currency Positions Survey focuses on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, the South Korean won, the Singapore dollar, the Indonesian rupiah, the Taiwanese dollar, the Indian rupee, the Philippine peso, and the Malaysian peso. Ringgit and Thai Baht.
The survey uses estimates of net long or short positions on a scale from minus 3 to plus 3. A score of plus 3 indicates that the market is significantly buying the US dollar.
The figures include positions held through non-deliverable futures contracts (NDFs).
The survey results are shown below (positions in USD for each currency):
date
09 Jan 25 1.65 1.75 1.34 1.20 1.18 1.69 0.99 0.65 0.76
December 12, 2024 1.15 1.86 0.83 0.87 0.82 1.43 0.65 0.53 0.26
28 Nov 24 1.32 1.45 1.12 1.03 1.10 1.13 0.76 1.13 0.66
November 14, 2024 1.14 1.61 0.80 0.81 1.07 0.87 0.65 1.18 0.90
31 Oct 24 0.30 1.06 -0.03 0.59 0.60 0.82 0.11 0.81 0.09
17-Oct-24 -0.43 0.26 -0.44 0.04 0.24 0.67 -0.40 0.26 -0.28
03-Oct-2024 -1.14 -0.79 -1.26 -1.08 -0.59 -0.04 -1.18 -0.70 -1.45
September 19, 2024 -0.67 -0.90 -1.12 -1.18 -0.66 0.33 -1.30 -1.10 -1.33
05-Sep-24 -0.85 -1.09 -1.26 -1.05 -0.77 0.21 -1.46 -1.00 -1.22
22 Aug 24 -0.62 -0.93 -1.08 -1.26 -0.70 0.21 -1.57 -1.03 -1.16
