By Himanshi Akhand
(Reuters) – Bearish bets on several Asian currencies rose to multi-month highs as the prospect of a US interest rate cut this year continued to boost demand for the dollar, while the threat of a potential US rate hike undermined the appeal of Asian risk assets, a Reuters poll showed. shown on Thursday.
Short bets on the Chinese yuan rose to their highest since June 2023, while those on the Malaysian ringgit and the Indonesian rupiah hit a seven-month high, according to two polls of 13 respondents.
The yuan, which has been trading near 16-year lows against the dollar, is seen as the most vulnerable to a stronger dollar and tougher tariffs under the administration of US President Donald Trump.
China is also Southeast Asia's largest trading partner and a weaker yuan could send ripples through regional financial markets.
Before Trump's inauguration on Jan. 20, markets have retreated from Asian stocks as his policies on tax cuts, tax hikes and stricter immigration are likely to raise US prices, bond yields and the dollar.
What's more, the Federal Reserve's forecast of two rate cuts in 2025, half of what it previously predicted, has led markets to now fully price in just one 25-percent (bp) cut in 2025, with a 60% chance of a second rate cut.
Higher US rates and dollar yield gains could spur capital outflows from Asian emerging markets and weaken their currencies.
“The external environment may limit how far Asian banks can mitigate the weakness of Asia FX seen since the beginning of the Fed cut cycle,” DBS analysts said in a note.
The US central bank has cut rates by 100 bps since September.
DBS added that there is a clash of domestic and foreign priorities for central banks in Asia and that smaller export-oriented economies may see lower price volatility.
Short positions in the Taiwan dollar have been high since May 2024.
Bearish bets on the Indian rupee, which entered a 9-straight session last week, were the highest since July 2022.
Short positions in the Singapore dollar have been high since October 2022.
“While Singapore may be directly protected from US tariff hikes, it will still be significantly exposed to the indirect impact of slower global growth and spillovers from China's slowdown,” Citi analysts said.
Citi is the foundation of the Monetary Authority of Singapore (MAS) to reduce the policy plans in January due to the latest trends in price deflation and challenges to growth stability.
South Korea's winner is now Asia's shortest currency, according to a poll. It had posted its worst annual decline in 16 years in 2024 as government efforts to boost the market were overshadowed by signs of declining exports and domestic political turmoil.
The Asian currency positioning poll focuses on what analysts and fund managers believe are the current market positions of nine emerging Asian markets: Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar , Indian rupee, Philippine peso, Malaysian. ringgit and Thai baht.
The poll uses estimates of long or short positions on a 3 to 3 scale. Points plus 3 indicate that the market is very long in US dollars.
The figures include positions held by non-deliverable forwards (NDFs).
The results of the survey are provided below (positions in US dollar against each currency):
DATE
09-Jan-25 1.65 1.75 1.34 1.20 1.18 1.69 0.99 0.65 0.76
12-Dec-24 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
14-Nov-24 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
19-Sep-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