Fed easing bets, carry trade unwind turn analysts bullish on Asian currencies: Reuters poll

By Sameer Manekar

(Reuters) - Analysts have turned bullish on most major Asian currencies for the first time in more than a year, bolstered by rising bets of interest rate cuts by the Federal Reserve and an unwinding of yen-funded carry trades, a Reuters poll found.

Bets on the Malaysian ringgit turned bullish for the first time since early February last year, and the view on Chinese yuan also shifted to slightly long for the first time since late April last year, a fortnightly poll of 12 analysts showed.

"Growing expectations of Fed's rate cuts ... reduced overall net long USD vs emerging markets Asia FX," said Poon Panichpibool, a markets strategist at Krung Thai Bank.

"Still, some impacts from the unwinding of yen carry trade also accelerated the reduction of net long dollar positions."

Over last week, odds of a 50 basis points rate cut in September have risen to 70% from 22%, with the chances of cuts later in the year also on the rise, according to CME FedWatch's tool.

However, the Fed is not expected to be as generous with rate cuts as the market is expecting, analysts at Goldman Sachs wrote in a client note, adding that the dollar still is and is likely to remain a "high carry currency".

"Scope for further downside in USD should be more limited from here, or at least the moves should become more gradual, and risks are skewed towards a modest rebound in the broad USD and therefore USD/Asia," they added.

Views on the Malaysian ringgit have been buoyed by the currency's stellar outperformance over the past few weeks, boosted by a host of factors including strong foreign inflows.

The currency has appreciated around 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 "strengthened the conviction on Malaysian ringgit", drawing large bond flows probably on an unhedged basis to participate in foreign exchange gain, which in turn added to the positive loop, analysts at Maybank wrote.

Bullish bets on the Singapore dollar firmed to their highest since February last year. Analysts are favouring the currency due to the city-state's growth and inflation dynamics, coupled with a hawkish stance by its central monetary authority.

Elsewhere, analysts turned bullish on the Thai baht and the Philippine peso for the first time in roughly eight months.

In contrast, bets on the Indian rupee and the Taiwan dollar remained bearish, with views on the rupee clouded by lingering pressure due to the unwinding of carry trades and sell-off in equities.

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.

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.

The figures include positions held through non-deliverable forwards (NDFs).

The survey findings are provided below (positions in U.S. dollar 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 YR HP HB

8-Aug-24 -0.02 0.05 -0.61 -0.02 0.59 0.60 -0.78 -0.29 -0.57

25-July-24 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02

11-July-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

(Reporting by Sameer Manekar and Himanshi Akhand in Bengaluru; Editing by Varun H K)