Bullish bets on most Asian units climb on vaccine hopes, China stability

SINGAPORE: Investors raised their long bets on the Chinese yuan and most other Asian currencies, a Reuters poll showed, as signs of a recovery in the world's second-largest economy and news of progress in coronavirus vaccine trials whetted risk appetite.

Bullish positions in the yuan outpaced those in peers and were at their highest in two-and-a-half years, touching levels only seen before the trade war between the United States and China started, the fortnightly poll of 16 respondents showed.

Encouraging early data from three potential Covid-19 vaccine trials and upbeat economic indicators from China have anchored regional markets of late, said Han Tan, a market analyst at FXTM, but warned that the tolerance of export-reliant Asian countries for further currency strength would be limited.

China posted better-than-expected gross domestic product (GDP) and trade figures last week and promised higher fiscal support and capital market reforms, boosting confidence in the yuan and stoking a rally in local equities.

Goldman Sachs analysts expect the elevated interest rate spread between the yuan and the dollar to support further currency inflows, and Chinese activity growth to outshine the rest of the world in the second half of 2020.

However, they point to worsening Sino-US relations as a potential threat to an economic rebound in China. The poll responses came in by Wednesday, before markets retreated on heightened Sino-US tensions after Washington ordered Beijing to close its consulate in Houston.

Poll results showed bullish bets on the Philippine peso and the Indian rupee climbed. Sentiment towards the two currencies has lately improved on the back of solid net inflows. Even as most Asian countries scrambled to stem a rise in new coronavirus cases, yield-seeking investors bought $6.45 billion worth of regional bonds last month, marking the biggest foreign inflow jump in a year.

On the flip side, bearish bets more than doubled on the Indonesia rupiah after the central bank cut interest rate last week for the fourth time this year and predicted a "U-shaped" economic recovery from the pandemic.

Meanwhile, investors turned bearish on the Thai baht for the first time since late May. The resignation of Finance Minister Uttama Savanayana, economic policy czar Somkid Jatusripitak and four other ministers within a week has sunk the baht and worsened prospects for the ailing economy.

The Reuters survey is focused on what analysts 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.