Investors expanded their long bets on the South Korean won to the highest level in nine months and nearly tripled bets on the Singapore dollar in July, a Reuters monthly poll showed on Thursday, as investors resumed buying higher yielding assets in emerging Asia in the new quarter.
Currency investors also raised their bets on China's yuan and the Indonesian rupiah while turning bullish on the Indian rupee. The outlook for emerging Asian currencies brightened even as fears grew that the euro zone's debt crisis could engulf bigger members such as Italy and Spain and as squabbling US politicians tried to reach a debt deal to avoid a potentially disastrous default.
On Wednesday, Moody's Investors Services warned of a possible US downgrade and the Federal Reserve's Chairman Ben Bernanke suggested further stimulus if the economy faltered further, darkening the dollar's prospects. Still, investors remained wary of risky assets on fresh negative news from the euro zone, which may drag on emerging Asian currencies.
Regional foreign exchange authorities are also expected to continue to step in if their currencies appreciate too quickly, although any interventions may not be too aggressive, given their efforts to fight inflation. Reflecting that view, bets on some Asian currencies such as the yuan and the Singapore dollar were weaker than ones in the April poll, when investors were less worried about the euro zone.
Emerging Asian currencies have maintained their strength so far this year, but gains in the second quarter were smaller than the previous three months on the euro zone's fiscal concerns and a slowing global economy. The poll asked 10 currency strategists to estimate how the market was positioned in eight Asian currencies against the dollar. The survey measures estimates of the net long or short position in a currency on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long on dollars.