Asian FX bears firm on Middle East tensions, hawkish Fed fears: Reuters poll
Investors maintain bearish bets on emerging Asian currencies
Investors have maintained bearish bets on most emerging Asian currencies due to escalating tensions in the Middle East and concerns about higher U.S. interest rates, according to a recent Reuters poll. This has led investors to seek safe-haven assets, pushing the value of these currencies down. Short positions on the Indian rupee and the Singapore dollar have reached their highest levels since November and October 2022, respectively, while bearish bets on Indonesia’s rupiah are at a 10-month high. The surge in oil prices resulting from the conflict in the Middle East has also raised concerns in financial markets.
Impact on net oil importing countries
Net oil importing countries like India, Indonesia, and Thailand are facing additional inflationary pressures due to the high oil prices. This has caused the market to remain concerned about the conflict and the possibility of higher-for-longer U.S. rates. Market strategist Poon Panichpibool stated that he expects Asian FX to be weaker for a longer period or to continue moving around the current levels. Christopher Wong, a currency strategist at OCBC, added that a recovery in Asian currencies would require a growth story, yield improvement, and a turnaround in the U.S. dollar, which are currently not forthcoming.
Recent shift in Federal Reserve’s policy outlook
Recent comments by U.S. Federal Reserve officials indicated a slight dovish shift in the central bank’s policy outlook. This provided some relief to Asian assets as the dollar dipped and Treasury yields eased. However, the stronger-than-expected U.S. inflation figures, which were released after the poll was conducted, may drive the case for the Fed to keep rates elevated. Analysts at ING stated that the more dovish tones of Federal Reserve speakers, which suggested that the rise in long-term yields could lessen the need for further rate hikes, appear less convincing in the face of resilient data.
Positioning on Asian currencies
The poll showed that investors have reduced their short positions on the Chinese yuan and the Malaysian ringgit. Bearish bets on the Thai baht have also eased from a three-month high. The Thai baht may receive support from safe-haven buying, particularly in gold. A rise in gold prices often leads to profit-taking flows and supports the baht, according to Krung Thai Bank’s Panichpibool. However, concerns over China’s property sector persist, despite data showing faster-than-expected economic growth in the country.
About the Asian currency positioning poll
The Asian currency positioning poll focuses on the market positions of 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, with a score of plus 3 indicating a significant long position on U.S. dollars. The figures include positions held through non-deliverable forwards (NDFs).
