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HomeCurrenciesShort Bets on Asian Currencies Rise as Firm Dollar Dents Confidence
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Short Bets on Asian Currencies Rise as Firm Dollar Dents Confidence

Bearish sentiment toward most Asian currencies has strengthened, according to a recent Reuters poll, reflecting a growing trend since the beginning of the year. The repricing of rate cut expectations following strong U.S. economic data has bolstered the dollar, prompting investors to increase short positions on Asian currencies.

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Short bets on the Malaysian ringgit surged to their highest level since mid-July last year, while those on the Indonesian rupiah reached an over five-month high. The Korean won emerged as the most shorted currency, hitting its highest level since October 2022, while short positions on the Singapore dollar climbed to a six-month high.

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The dollar’s strength, fueled by robust U.S. economic data and persistent inflation, has led some Federal Reserve officials to temper market expectations of rate cuts, casting a shadow over emerging currencies. According to Michael Wan, senior currency analyst at MUFG, the stronger dollar trend has raised concerns among officials overseas, with the U.S. potentially exporting its inflation problem to other countries through the dollar.

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In response to currency volatility, the Indonesian central bank has reassured investors of its intervention to stabilize the rupiah, which has fallen about 5% so far this year to a four-year low. Similarly, the Bank of Korea signaled its readiness to address volatile currency movements.

Analysts at HSBC anticipate a moderation in USD-Asia pairs later in the year, contingent upon the Fed initiating a policy easing cycle and manageable geopolitical risks. However, they caution that Asian currencies could face further depreciation if the Fed refrains from cutting rates due to a re-acceleration of the U.S. economy.

Meanwhile, short bets on the Chinese yuan increased to their highest level since early November, despite efforts by the central bank to counter depreciation. Analysts also turned bearish on the Indian rupee, marking the first time since mid-December, attributing its weakness to various external factors including lingering geopolitical risks and renewed volatility in other currencies.

Christopher Wong, a currency strategist at OCBC, noted that while the rupee has weakened, it remains relatively stable compared to other regional currencies due to factors such as carry allure, bond inclusion, and expectations of policy continuity.

The poll reflects current market positions in nine Asian emerging market currencies and utilizes estimates of net long or short positions on a scale ranging from minus 3 to plus 3.

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