Asia FX sentiment weakens on growing likelihood of Fed rate hike

Reuters: Sentiment towards most emerging Asian currencies has worsened from two weeks ago, after comments from Federal Reserve officials heightened market expectations for a U.S. rate hike this month, a Reuters poll showed.

Investors were estimated to have trimmed their bullish bets on the Indonesian rupiah, Indian rupee, Thai baht and Taiwan dollar, according to the survey. They also shifted to having a slightly short position in the South Korean won, the first time in two months that bets on the won turned bearish.

The won came under pressure late last week as investors turned anxious after news reports said China ordered tour operators to stop selling trips to South Korea amid rising tension over the deployment of a U.S. missile-defence system. Investors also increased their bearish bets against the Chinese yuan, and the Philippine peso, the poll of 17 market participants, including analysts, traders and fund managers showed.

Bearish bets against the yuan rose to the largest in two months. The yuan touched a near two-month low of 6.9207 per dollar on Thursday due to strong corporate demand for the greenback, forcing state-owned banks to sell dollars to keep the yuan from falling too fast, traders said.

Short positions in the Philippine peso, which hit 10-year lows this month, rose to the largest since late November.

The peso has underperformed so far this year, with a drop of 1.3% against the U.S. dollar. The peso has been pressured by a recent widening in the Philippines’ trade deficit, which has increased on the back of surging imports.

Recent comments by U.S. Federal Reserve officials including Fed Chair Janet Yellen, have spurred traders to increase bets that the Fed will raise interest rates by a quarter of a%age point, to 0.75-1.00%, at its two-day policy meeting on March 14-15.

The majority of foreign exchange strategists in a Reuters poll published last week said the Trump administration’s dollar policy is not clear, and the greenback’s further near-term strength will depend mainly on the speed of Fed interest rate hikes.

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.