Investors turn long on India’s rupee after 4 months; rupiah short bets cut

BENGALURU: Investors switched to long positions on India’s rupee for the first time since September, on hopes that the economy may be able to withstand the worst of the Omicron surge and bets that U.S. rate hikes are largely priced in, a Reuters poll found.

Broadly, investors stayed bearish on most Asian emerging currencies, the poll of 12 respondents showed, as the spread of Omicron threatens to slow the region’s recovery, although, so far, emerging equities have remained fairly resilient. High inflation in the United States may also prompt the Federal Reserve to hasten its interest rate hikes, with the central bank signalling in December that they could raise rates three times this year.

“Although these are headwinds, we do not think the market is overly complacent as risks are likely to be moderate (Omicron) and/or have been largely priced already (Federal Reserve),” analysts at Barclays said earlier this week.

So far in India, which is in the midst of a third wave of the COVID-19 pandemic, states have imposed some restrictions on daily life, but have not enforced economically damaging lockdowns seen in previous waves.

Asia’s third-largest economy grew at the fastest pace for any major economy between July and September, as businesses reopened and government spending strengthened.

Barclays added that it does not see tighter Fed policy, led by U.S. growth outperformance, driving sustained dollar strength, and remains long on the rupee. The rupee has appreciated close to 3% since mid-December.

Even in Indonesia, whose bond markets are susceptible to foreign flows, the rupiah has not been too volatile. Traders trimmed their short bets on the rupiah as local demand recovers and vaccination rates rise.

Standard Chartered said in a note that given the high vaccination rates and data suggesting the Omicron variant is less severe than other variants, it may allow for the Indonesian economy to open further.