Investors are increasingly adopting short positions on the majority of Asian currencies as the strength of the dollar continues to dominate, according to a Reuters poll.
Analysts have adopted a bearish outlook on most Asian currencies, with short positions on the Indian rupee reaching a one-year peak. This shift is attributed to the strengthening of the dollar, driven by expectations that the Federal Reserve will adopt a less aggressive approach to rate cuts, diminishing the appeal of riskier Asian assets.
According to a biweekly survey of 11 analysts conducted on Thursday, short positions in the South Korean won, Philippine peso, and Indonesian rupiah are at their highest levels since July 25.
Additionally, bullish positions in the Chinese yuan, Singapore dollar, Malaysian ringgit, and Thai baht have significantly decreased since early October.
The increasing demand for the dollar, coupled with declining expectations for substantial Fed rate cuts and uncertainties surrounding the U.S. elections, has eroded investor confidence in Asian currencies.
The dollar index, which gauges the greenback against six major currencies, has appreciated by 3% since September 30, currently trading at 103.57, a level not seen since late July.
In India, the rupee fell below 84 per U.S. dollar last week, a threshold that the Reserve Bank of India had defended for over two months. This decline is exacerbated by rising oil prices, which could inflate costs for the net-importing country, alongside the outflow of foreign capital from the domestic equity market, putting additional pressure on the local currency.
Responses to the survey were collected prior to the interest rate decisions made by central banks in Thailand, the Philippines, and Indonesia on Wednesday.
The Bank of Thailand and Bangko Sentral ng Pilipinas (BSP) opted for rate cuts, while Bank Indonesia decided to maintain its current rates.
Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken, noted that while fundamentals suggest a move towards neutral rates, the depreciation of the peso may prompt the BSP to proceed cautiously with easing, ensuring it does not outpace the Fed.
In Thailand, despite government backing for the rate cut, the baht remains the second-best performing currency in Asia this year, having appreciated nearly 3% thus far, trailing only the Malaysian ringgit.
Investor confidence in the ringgit, often viewed as a proxy for the yuan due to Malaysia's trade ties with China, has been undermined by fluctuations in oil prices. Malaysia is unique among major emerging Asian economies as the sole net exporter of oil and gas.
In a related development, short positions on the Taiwanese dollar have reached their highest level since August 8.
Concerns regarding Taiwan's export-driven, technology-focused economy have intensified following reports that the Biden administration is contemplating restrictions on the sale of advanced artificial intelligence processors to certain nations.
An Asian currency positioning survey aims to gauge the current market positions of nine emerging market currencies in Asia: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit, and Thai baht.
This survey assesses net long or short positions on a scale ranging from minus 3 to plus 3, where a score of plus 3 indicates a significant long position in U.S. dollars.
The data also encompasses positions held via non-deliverable forwards (NDFs).
The results of the survey are detailed below, showing positions in U.S. dollars against each currency.