Economy

Bullish Bets on Asian Currencies Increase Amid Fed Rate Cut Speculations: Reuters Poll

By Roushni Nair

Analysts have increased their bullish positions on various Asian currencies following mixed economic data that has stirred concerns about growth in the world’s largest economy. This shift has raised expectations for significant U.S. interest rate cuts, diminishing the appeal of the dollar.

Long positions on the South Korean won and the Singapore dollar, which has been the strongest performer in the region this year, have climbed to their highest levels since January 26, 2023. In contrast, bearish sentiment on the Indian rupee remains unchanged, according to a biweekly poll of twelve analysts conducted on Thursday.

Singapore stands out as one of the few countries globally with a triple-A sovereign credit rating, reflecting its robust fiscal and external financial health, which makes it an attractive safe haven for investors.

On the other hand, the current low valuation of the Indian rupee against the dollar is primarily a result of the Reserve Bank of India’s (RBI) measures to manage the currency’s exchange rate— particularly through the purchase of foreign currency to bolster reserves over the last decade, as noted by analysts at ANZ.

According to ANZ, "The outcome of the RBI’s interventions has been increasing foreign exchange reserves, notably low exchange rate volatility, and active utilization of the forward book to align currency interventions with domestic liquidity conditions."

The dollar’s robust 5% gain against key currencies in the first half of the year has largely been reversed as market sentiment shifted towards anticipating more aggressive rate cuts. Recent data indicates that U.S. job openings have fallen to a three-and-a-half-year low in July, reflecting a continued relaxation in labor market conditions, while comments from San Francisco Fed President Mary Daly have underscored the necessity of rate reductions.

Traders now consider a quarter-point reduction in rates at the Fed’s upcoming meeting on September 17-18 to be the more likely scenario, with a 50-basis-point cut receiving roughly a 49% chance, an increase from 41% prior to the latest economic data releases.

Elsewhere, bullish positions on the Chinese yuan have surged to their highest levels since February 9, 2023, while long positions on the Thai baht have also risen to their highest since January 26, 2023.

The notable yield advantage of the rupee over the yuan, along with differing economic prospects and stable exchange rates, has made borrowing in yuan to invest in rupee-denominated assets a highly lucrative carry trade strategy within Asia.

In Thailand, a reduction in political tensions, coupled with positive economic growth, reinforces the case for increased foreign investment.

Analysts continue to express optimism regarding the Indonesian rupiah, the Philippine peso, and the Malaysian ringgit.

The recent Asian currency positioning poll focuses on analysts’ and fund managers’ assessments of current market positions across nine emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit, and Thai baht.

The poll evaluates net long or short positions on a scale from minus 3 to plus 3, where a score of plus 3 indicates a significant long position on U.S. dollars.

The gathered data encompasses positions held through non-deliverable forwards (NDFs).

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