By Sameer Manekar
(Reuters) – Analysts have turned bullish on most major Asian currencies for the first time in more than a year, supported by rising expectations of Federal Reserve rate cuts and a tapering of yen-funded carry trades, a poll by Reuters.
Bets on the Malaysian ringgit turned bullish for the first time since early February last year, and views on the ringgit also shifted to slightly long for the first time since late April last year, a fortnightly poll of 12 analysts showed.
“Increasing expectations of Fed rate cuts… reduced the overall net long USD position against Asian emerging market currencies,” said Poon Panichpibool, market strategist at Krung Thai Bank.
“Yet, some of the fallout from the unwinding of carry trading in the yen has also accelerated the unwinding of net long dollar positions.”
Over the past week, the probability of a 50 basis point rate cut in September increased from 22% to 70%, while the probability of a rate cut later in the year is also increasing, according to the CME FedWatch tool.
However, the Fed is not expected to be as generous with rate cuts as the market expects, Goldman Sachs analysts wrote in a client note, adding that the dollar is still a “high carry currency” and is likely to remain.
“The scope for further downside in the USD should be more limited from here on out, or at least the moves should become more gradual, with risks shifting towards a modest recovery in the broad USD and thus USD/Asia,” they added.
Views on the Malaysian ringgit have been buoyed by the currency’s stellar outperformance in recent weeks, boosted by a host of factors including strong foreign inflows.
The currency has appreciated about 6% since mid-July and more than 7% since late February, when it fell to its lowest level since early 1998.
Expectations of Fed easing “reinforced conviction in the Malaysian ringgit,” likely attracting large bond flows on an unhedged basis to participate in exchange rate gains, which in turn contributed to the positive loop, analysts wrote from Maybank.
Bullish bets on the Singapore dollar have risen to their highest level since February last year. Analysts favor the currency due to the city-state’s growth and inflation dynamics, coupled with an aggressive stance from the central monetary authority.
Elsewhere, analysts turned bullish on the Thai baht and Philippine peso for the first time in about eight months.
In contrast, bets on the Indian rupee and Taiwan dollar remained bearish, with the view on the rupee clouded by continued pressure from carry trade expirations and equity sell-offs.
The Asian currency positioning poll focuses on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese Yuan, the South Korean Won, the Singapore Dollar, the Indonesian Rupiah, the Taiwan Dollar , the Indian rupee, the Philippine peso, the 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 that the market is significantly long in US dollars.
The figures include positions via non-deliverable forwards (NDFs).
Below are the survey results (US dollar positions versus each currency):
DATE USD/C USD/K USD/S USD/I USD/T USD/I USD/M USD/P USD/T
NY RW GD DR WD NR JR HP (NYSE:) HB
8-Aug-24 -0.02 0.05 -0.61 -0.02 0.59 0.60 -0.78 -0.29 -0.57
25-Jul-24 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02
11-Jul-24 1.05 0.87 0.06 0.73 0.68 0.22 1.03 0.86 0.51
27-June-24 1.34 1.28 0.80 1.49 0.88 0.46 1.00 1.37 0.91
13-June-24 0.95 0.87 0.62 1.22 0.64 0.37 1.00 1.23 0.92
30-May-24 1.05 0.72 0.33 0.94 0.53 0.00 0.81 1.19 1.00
16-May-24 1.05 0.96 0.35 0.96 1.02 0.39 1.23 1.29 1.00
2-May-24 1.25 1.61 0.89 1.39 1.40 0.49 1.46 1.44 1.39
18-April-24 1.25 1.59 0.80 1.32 1.24 0.43 1.42 1.19 1.28
4-April-24 1.18 1.09 0.42 1.13 1.17 0.00 1.15 0.62 1.35
21-March-24 0.92 0.82 0.33 0.60 0.92 -0.54 1.12 0.47 1.13
