Sentiment towards most emerging Asian currencies soured further in the last two weeks, a Reuters poll showed, as the dollar held firm after a recent global equity rout and Treasury yields climbed to four-year highs. The US currency has been weighed down by several factors this year but has been underpinned by yields that have seen a steady rise amid increased government borrowing.
The minutes of the latest US Federal Reserve meeting, released on Wednesday, affirmed expectations of further rate increases this year, helping bond yields to surge higher and strengthening the dollar. In Asia, long positions on most currencies were trimmed, but bets on the Indonesian rupiah and the Indian rupee turned bearish for the first time in more than three and four months, respectively.
The rupee is the second-worst performer among Asian currencies this year, shedding nearly 2 percent. It slipped to a three-month low on Wednesday on concerns over the country's widening trade deficit and growing fallout from the $1.8 billion Punjab National Bank fraud. Indonesia's central bank stayed pat on its policy rate last week as expected, as it looks to maintain stability in the struggling rupiah, which has seen wild swings in recent weeks as global investors reduced their holdings of riskier assets.
"The swing in sentiment against the INR and IDR is hardly surprising considering the build-up of negative local factors in the former and the latter's steadily shrinking yield advantage," said Reuters FX analyst Krishna Kumar. "RBI smoothing and inflows to rupiah bonds after their addition to a global index may mitigate, but not reverse, the rising bearish sentiment on both currencies."
Indonesia expects further inflows from foreign investors into its debt market after news that rupiah bonds will be added to the Bloomberg Barclays' Global Aggregate Index, prompting fund managers to add them to their portfolios.
Bullish bets on the Korean won and Thai baht weakened slightly, while that on the Malaysian ringgit touched a four-month low, according to the poll of 12 analysts, traders and fund managers. Long positions on the Chinese yuan dipped to its lowest since January. Bullish bets on the Singapore dollar declined to more than a two-month low, but investor sentiment towards Taiwan's dollar improved slightly.
The Philippine peso, which has lost 4.2 percent so far this year and has been the weakest currency in Asia, saw investors turn more bearish, with short positions at their highest since November 2016. Recent data released by the Philippine central bank shows the balance of payments deficit reaching $1 billion in 2018, wider than the previous year's gap of $863 million.
The poll was conducted between Tuesday and Wednesday, with the bulk of the responses coming in by Wednesday before tthe Fed minutes were released 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 on US dollars. The figures include positions held through non-deliverable forwards (NDFs).