Author: Himanshi Akhand
(Reuters) – Bearish rates on most Asian currencies rose to their highest levels in months as the prospect of fewer U.S. interest rate cuts this year continues to boost demand for the dollar, while the threat of potential U.S. tariffs dampened the appeal of risky Asian assets, a Reuters poll showed on Thursday.
Short bets on the Chinese yuan rose to the highest level since June 2023, while miniature bets on the Malaysian ringgit and Indonesian rupiah rose to a seven-month high, according to a biweekly survey of 13 respondents.
The yuan, which has hit a near 16-year low against the dollar, is seen as most vulnerable to a stronger dollar and higher tariffs under US President-elect Donald Trump.
China is also Southeast Asia’s largest trading partner, and a weaker yuan could cause confusion in regional currency markets.
Ahead of Trump’s inauguration on Jan. 20, markets were turning away from Asian assets as his policies of tax cuts, tariff increases and tighter immigration are likely to boost U.S. bond prices, bond yields and the dollar.
Moreover, the Federal Reserve’s forecast of two rate cuts for 2025, half of what it previously estimated, has left markets now fully pricing in only one 25 basis point (bp) rate cut in 2025, with 60% chance of a second reduction.
Higher U.S. interest rates and the dollar’s advantage in yields could spur capital outflows from emerging Asian markets and weaken their currencies.
“The external environment may limit how much Asian central banks can ease the situation amid the weakening in Asian currencies seen since the beginning of the Fed rate cut cycle,” DBS analysts said in a note.
Since September, the US central bank has reduced interest rates by 100 basis points.
DBS added that there is a conflict between domestic and external priorities for Asian central banks, and less export-oriented economies may see less price volatility.
Short positions in the Taiwan dollar were at their highest since May 2024.
Bearish bets on the Indian rupee, which posted its ninth consecutive weekly decline last week, were at their highest since July 2022.
Short positions in the Singapore dollar have reached their highest level since October 2022.
“While Singapore could be directly protected from escalating US tariffs, it would still be significantly exposed to the indirect impact of slowing global growth and the spillover effects of slowing Chinese exports,” Citi analysts said.
Citi’s base case scenario is for the Monetary Authority of Singapore (MAS) to ease monetary policy arrangements in January due to recent disinflationary trends and challenges to the resilience of economic growth.
The survey shows that the South Korean won is currently the Asian currency that has the shortest exchange rate. It suffered its worst annual contraction in 16 years in 2024 as government efforts to stimulate the market were overshadowed by signs of slowing exports and domestic political turmoil.
The Asian Currency Positioning Study focuses on what analysts and fund managers believe is the current market position in nine Asian emerging market currencies: Chinese Yuan, South Korean Won, Singapore Dollar, Indonesian Rupiah, Taiwan Dollar, Indian Rupee, Philippine Peso, Malaysian Ringgit and Thai baht.
The survey uses estimates of net long or miniature positions on a scale of minus 3 to plus 3. A result of plus 3 indicates that the market is significantly long in US dollars.
The data includes positions held under delivery forward contracts (NDF).
The survey results are presented below (items in US dollars compared to individual currencies):
DATE
09-Jan-25 1.65 1.75 1.34 1.20 1.18 1.69 0.99 0.65 0.76
12-12-24 1.15 1.86 0.83 0.87 0.82 1.43 0.65 0.53 0.26
28-Nov-24 1.32 1.45 1.12 1.03 1.10 1.13 0.76 1.13 0.66
14-Nov-24 1.14 1.61 0.80 0.81 1.07 0.87 0.65 1.18 0.90
31-Oct-24 0.30 1.06 -0.03 0.59 0.60 0.82 0.11 0.81 0.09
17-Oct-24 -0.43 0.26 -0.44 0.04 0.24 0.67 -0.40 0.26 -0.28
03-Oct-2024 -1.14 -0.79 -1.26 -1.08 -0.59 -0.04 -1.18 -0.70 -1.45
September 19, 2024 -0.67 -0.90 -1.12 -1.18 -0.66 0.33 -1.30 -1.10 -1.33
05-Sep-24 -0.85 -1.09 -1.26 -1.05 -0.77 0.21 -1.46 -1.00 -1.22
22-Aug-24 -0.62 -0.93 -1.08 -1.26 -0.70 0.21 -1.57 -1.03 -1.16
