Increasing Bullish Bets on Asian Currencies
Due to solid US economic statistics that increased the value of the US dollar and increased the chance of higher interest rates for a longer length of time, bullish bets on the majority of Asian currencies have lately decreased. The South Korean won, Singapore dollar, and Indonesian rupiah have seen a fall in long holdings, while market players have become negative on the Indian rupee, according to a recent Reuters survey of 10 respondents.
US Dollar Hits Month-High
Due to last Friday’s excellent employment report, which raised hopes that the Federal Reserve will keep raising interest rates to fight inflation, the US dollar is presently trading close to a one-month high. As anticipated, the Fed raised interest rates by 25 basis points last week, and Fed Chair Jerome Powell and other officials have hinted that there would likely be further rate rises in the future.
FX in Emerging Markets is impacted.
The Federal Reserve has had to reevaluate its objectives in light of the strong US economic statistics, which has hurt several emerging market currencies that had previously benefitted from portfolio inflows and upbeat expectations for China’s reopening. Strong US data at the end of last week caused the Fed to reconsider its policy, which impacted several EM foreign exchange markets that had gained from a flurry of portfolio inflows and optimism surrounding China’s reopening, according to analysts at TD Securities.
Reduced Trust in Asian Assets
Following China’s elimination of Ebola border barriers earlier this year, investor confidence in Asian equities had increased, but concerns about the Federal Reserve’s future intentions have lowered sentiment. Currency expert Christopher Wong from OCBC says that optimism for China’s reopening have not yet been supported by further convincing data points as investors wait for US consumer price inflation data the following week.
Asian currency long bets are less common now.
Additionally, investors have decreased their long positions in the Thai baht, Asia’s best-performing currency this year, the Malaysian ringgit, and China’s yuan, which has dropped to a one-month low. Christopher Wong, however, thinks that “several of the Asian currencies, notably the ringgit and the baht, might resume their rise again” if “the China reopening story acquires a little more traction into Q2.”
Indian Rupee sentiment is negative.
Due to worries about recent volatility in domestic stocks that have seeped into money markets, investors have taken a modest pessimistic stance on the Indian rupee. Since late January, when US short-seller Hindenburg Research issued a damning report on the finances of the Adani Group, accusing the conglomerate of stock manipulation and other infractions, the Indian equities market has seen tremendous instability. “A severe surrender of portfolio flows, worsened by the Adani catastrophe, made pre-existing currency vulnerabilities even more acute,” argues Vishnu Varathan, head of economics and strategy at Mizuho Bank.
Putting an emphasis on Asian emerging market currencies
According to a Reuters survey on Asian currencies, nine Asian emerging market currencies—the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit, and Thai baht—are now in the top ten on the market. A score of plus 3 indicates a sizeable long position in US dollars. The poll rates the net long or short holdings on a scale of minus 3 to plus 3. The numbers reflect positions.