SINGAPORE: Investors increased long positions on most Asian currencies, a Reuters poll found, as a firmly dovish US Federal Reserve and aggressive US fiscal stimulus kept the dollar under pressure, aiding prospects for riskier emerging market currencies.
Bullish bets were the strongest for currencies of export-focused nations such as China, Singapore and Taiwan, the fortnightly poll of 13 respondents showed, while short views on the Indian rupee rose as Covid-19 infections raged across many parts of the country.
The dollar jumped to a two-week high on Wednesday as talks of asset purchase tapering grew in the face of strong US economic data. Most analysts, however, called the talks a knee-jerk reaction, and Fed officials also reiterated their dovish view.
“In the long run, the Fed may end up being one of the early movers to unwind loose policy among developed nations... but a lack of unwinding of quantitative easing or hesitation to do so this year may still offer upside support to Asian FX,” said Daniel Dubrovsky, analyst at DailyFX.
“In the short run, there may be some room for further weakness in the greenback if bond markets remain quiet.”
Long bets on the yuan were at their highest since Feb. 25, with the currency hovering at a two-month high as China leads Asia’s economic rebound without the shackles of a resurgence in Covid-19 infections that its neighbours are facing.
Sentiment also held strong for the Taiwan dollar, with bullish positions at their highest since Feb. 11. The island’s exports likely rose for a 10th straight month in April, as demand for electronic goods continues.
Bullish views on the Singapore dollar were at their highest since late January. Recent economic data has shown strong improvement in the city-state’s key electronic exports, and economic growth is expected to exceed 6% this year.
Investors will likely keep a close eye on the currency though, in the wake of tighter curbs on social gatherings and stricter border measures after Singapore recorded locally acquired cases of coronavirus variants, including a more contagious strain first detected in India.
Short bets on Indonesia’s rupiah were trimmed as the economy has shown strong signs of recovery amid higher government spending, though continued Covid-19 infections curbed further recovery of sentiment.
Short positions on the Indian rupee rose to their highest since April last year, as an unabated spike in Covid-19 infections during the second wave of the pandemic sparked strict lockdowns in major cities.
Goldman Sachs trimmed its second-quarter estimates for India’s gross domestic product to -20.5% from -12.2%, and pushed back expectations for calibrated liquidity tightening by the Reserve Bank of India.
Market participants remained short on the Thai baht, as a third wave of infections there ended hopes for a tourism revival, even as vaccinations move at a sloth pace.
The Asian currency positioning poll is focused on what analysts and fund managers 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.
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