Emerging Asian Currencies Strengthen as Investors Bet on Rate Peaks

Rishav Chatterjee reports on bullish bets on emerging Asian currencies

Bullish bets firmed on most emerging Asian currencies as expectations of an end to U.S. interest rate hikes triggered an easing in the greenback, boosting investors’ appetite for riskier assets, a Reuters poll showed on Thursday.

Long Positions Strengthen for Taiwanese Dollar, South Korean Won, and Singapore Dollar

Long positions on the Taiwanese dollar, the South Korean won, and the Singapore dollar strengthened, according to a fortnightly poll of 10 analysts.

- Advertisement -

Improved Sentiment for Riskier Asian Currencies

Sentiment towards riskier Asian currencies has improved in recent times as market participants bet on U.S. dollar weakness after the U.S. Federal Reserve’s latest economic projections indicated an end to the interest-rate hike cycle.

Impact of the U.S. Federal Reserve’s Latest Economic Projections

The dollar sank to a fresh four-month low after the Fed left interest rates unchanged on Wednesday and said the historic tightening of monetary policy was likely over with inflation falling faster than expected and a discussion of cuts in borrowing costs coming “into view.”

Asian currencies’ outlook

“The FOMC’s pivot to internally discussing rate cuts at its last meeting for 2023 (from rate hikes before) has pushed USD-Asia down sharply. It looks like Asian currencies will end the year 2023 on an optimistic note again like they did in 2022,” analysts at HSBC wrote.

Philippine Peso and Other Currencies

Bullish bets on the Philippine peso also firmed. Most of the responses were received before the Bangko Sentral ng Pilipinas kept its benchmark interest rate steady at 6.50% for a second straight meeting, but signalled policy would stay tight for longer to bring inflation back to target.

Inflation Trends in Various Countries

Data from Thailand, the Philippines, and South Korea last week showed that inflation eased in November, likely providing central banks a little breathing room in terms of rates. In contrast, data from India showed retail inflation in November rose at its fastest pace in three months, bolstering bets that the Reserve Bank of India will not ease interest rates anytime soon.

Market Positions in Nine Asian Emerging Market Currencies

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.

Net Long or Short Positions

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 U.S. dollars.

Poll Results

DATE

• 14-Dec-23 0.02 -0.09 -0.22 -0.05 -0.33 0.34 0.58 -0.22 0.16
• 30-Nov-23 0.12 -0.05 -0.07 -0.05 -0.13 0.63 0.73 -0.10 -0.1
• 16-Nov-23 0.77 0.49 0.38 0.77 0.63 0.82 1.14 0.38 0.28
• 02-Nov-23 1.32 1.18 0.74 1.44 1.31 1.35 1.33 0.96 0.85
• 19-Oct-23 1.02 1.16 0.84 1.06 1.06 1.21 0.78 0.89 0.67
• 5-Oct-23 1.17 1.25 0.81 1.00 1.25 0.92 1.08 0.75 1.03
• 21-Sep-23 1.29 0.94 0.61 0.84 0.98 1.00 1.03 0.64 0.83
• 7-Sep-23 1.28 1.01 0.30 0.65 0.95 0.79 0.86 0.55 0.57
• 24-Aug-23 1.42 0.79 0.34 0.77 1.00 0.84 1.18 0.92 0.50
• 10-Aug-23 0.74 0.68 0.28 0.60 1.12 0.62 0.98 0.75 0.49