Investors increased bearish bets on most Asian currencies in the past two weeks, with short positions on the Philippine peso at the highest since 2008, as rising oil prices and turmoil in Italy dampened appetite for riskier assets, a Reuters poll showed. Sentiment was further hurt by renewed trade tensions between the world's two biggest economic superpowers, the United States and China, which could inflict collateral damage on other Asian economies.
Bearish bets on the Philippine peso rose to their highest since October 2008, the poll of 9 respondents showed. The peso has been one the region's worst performers and looks set to come under further pressure following the central bank's decision to cut its banks' required reserves by one percentage point last week.
The move is expected to add to inflationary pressures from higher fuel and rice prices, which prompted the central bank to raise policy rates for the first time in three years earlier this month. Some economists expect another rate hike in June. Short positions on the Indian rupee rose to their highest since August 2013, even though the Reserve Bank of India is also seen turning hawkish.
Most analysts in a separate Reuters poll expect the central bank to hike rates in August on concerns that already above-target inflation will climb further. Short positions in the Indonesian rupiah increased slightly, hitting their highest since October 2015, despite two rate hikes by its central bank in two weeks to shore up the faltering rupiah.
The rupiah was among the worst hit among Asian assets as rising US bond yields and a firmer dollar sparked capital flight from many emerging economies. The rupiah strengthened 0.8 percent on Thursday after Bank Indonesia raised the benchmark rate by 25 basis points in an out-of-cycle policy meeting on May 30, as expected. That followed a hike earlier this month and pushed the key rate to 4.75 percent.
Though both the rupee and the rupiah have rebounded recently, helped by a reversal in oil prices and monetary intervention, policy tightening by their central banks risks curbing the countries' economic growth. Investors also upped their short positions on the Malaysian ringgit, after reversing bullish bets on the currency earlier this month following the opposition's shock election victory. Many market players are concerned over the impact of the new government's promises on the country's fiscal position.
Investors also trimmed their long positions on the Chinese yuan amid conflicting signs over whether Beijing and Washington were making progress in talks to avoid a full-blown trade war. After an apparent thaw following negotiations in mid-May, tensions flared again this week after the White House said it would press ahead with tariffs and restrictions on Chinese companies, triggering a warning from Beijing that it is ready to fight back.
"The re-ignition of the Sino-US trade tensions will also dampen risk sentiments going forward," OCBC Bank said in a note on May 30. The yuan is on track to fall 1.2 percent against the dollar in May, its worst month since November 2016. 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.
The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long US dollars. The figures include positions held through non-deliverable forwards (NDFs).
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