Asian FX Sees Bullish Bets Due To Easing Of China’s COVID Curbs

Asian FX Sees Bullish Bets Due To Easing Of China’s COVID Curbs

January 26, 2023 0 By Wiley McDermott

There was further consolidation in bullish bets on the Malaysian ringgit and Singaporean dollar, as they reached a high of five years because the US dollar rally fizzled out.

In addition, investor appetite had also seen a boost for emerging Asian currencies after China lifted some of its COVID-19 curbs.

Bullish bets

It appeared that investors had a bullish stance towards all nine emerging currencies in Asia, which was a first in almost two years.

As a matter of fact, bullish bets only strengthened after there had been a huge downturn last year against the US dollar because of the aggressive monetary policy tightening of the US Federal Reserve.

Economists said that it was likely that positions on Asian currencies would hold steady and there was also a chance of appreciation because the markets have priced in a smaller hike from the Fed.

China is the largest trading partner in Asia and a manufacturing powerhouse and a double dose from the country has given a boost to the appetite for high-risk Asian currencies.

This is because the country eased its strict COVID-19 curbs, which increased bets that local central banks could put an end to their monetary tightening cycle soon.

The movements

The central bank in Malaysia surprised markets last week when it decided to hold its interest rate steady, after delivering four hikes in a row last year.

Bank Indonesia also indicated that its tightening cycle was coming to an end because inflation was cooling down.

Long positions firmed on the Malaysian ringgit and the Singapore dollar to hit their highest since January 2018. There was a sharp jump in long positions on the Indonesian rupiah to reach multi-year highs.

Last year, the only Asian currency to have appreciated was the Singapore dollar and it started this year on a strong footing as well.

It has recorded gains of 2.1% so far, which has taken the currency to the highest it has been since April 2018.

Analysts said that the core inflation in Singapore had remained high in December, which shows that the MAS is likely to tighten again in its April meeting, thereby supporting a stronger Singapore dollar.

Other currencies

It appears that the Philippine peso has seen its bullish bets reach the highest level in the last two years, but long positions on currencies like the South Korean won, Chinese yuan, and Thai baht easing slightly.

The Indian rupee saw long positions for the first time in more than a year, with the number of bets on the currency the lowest amongst its peers.

The purpose of the currency positioning of Asia is to show what fund managers and analysts consider the existing positions in the market in nine emerging market currencies in Asia.

These include the Thai baht, the Malaysian ringgit, the Philippine peso, the Indian rupee, the Taiwanese dollar, the Indonesian rupiah, the Singaporean dollar, the South Korean won, and the Chinese yuan.

In other news, the US Fed is scheduled for a meeting next week in which it is expected to deliver another interest rate hike, albeit a smaller one this time.