Asian FX: Bearish Sentiment Persists Amid Dollar Strength
AInvestThursday, Oct 17, 2024 3:41 am ET
1min read
Investors have turned increasingly bearish on Asian currencies, with short positions on most Asian FX reaching multi-month highs, according to a Reuters poll. The prevailing strength of the U.S. dollar and expectations of higher U.S. interest rates for longer have dampened appetite for riskier assets, leading to a rise in bearish bets on Asian currencies.


The South Korean won, Singapore dollar, Philippine peso, and Thai baht have all seen short positions rise to their highest levels since mid-October 2022. HSBC noted that most emerging market (EM) risk premiums are low, given the convergence of yields with those in the U.S., making open EM FX exposures less compelling. Christopher Wong, a currency strategist at OCBC, warned that renewed weakness in the Chinese yuan and the yen could further undermine sentiment towards Asian currencies.


Bearish bets on the Indian rupee have increased after investors turned bearish on the currency for the first time in four months. Short positions on the Indonesian rupiah and the Malaysian ringgit have also risen to multi-month highs. Bank Indonesia has been intervening to defend the rupiah amid global uncertainty about the timing of U.S. rate cuts and tensions in the Middle East.

Asian central banks have been grappling with the impact of U.S. rate hikes on their currencies. The interest rate differentials between the U.S. and Asian countries have influenced investors' decisions to short Asian currencies. Geopolitical risks and regional economic growth prospects have also played a role in shaping investors' bearish sentiment towards Asian FX.

The U.S. Federal Reserve's policy on interest rates has a significant impact on Asian currencies. Expectations for U.S. dollar strength and Fed policy have contributed to investors' positioning in Asian currencies. Currency-specific fundamentals, such as inflation, growth, and fiscal policies, have also contributed to investors' bearish views on Asian FX.

Asian currencies' interest rate differentials with the U.S. have affected their positioning in response to U.S. rate hikes. Investors' perceptions of the U.S. dollar's strength have influenced their short positions on Asian currencies. Geopolitical risks and regional economic fundamentals have played a role in Asian FX positioning amidst U.S. rate hikes.

In conclusion, the prevailing strength of the U.S. dollar and expectations of higher U.S. interest rates have led to a rise in bearish bets on Asian currencies. Asian central banks face challenges in managing their currencies amidst these global factors. As the U.S. Federal Reserve's policy on interest rates continues to evolve, Asian currencies may face further volatility. Investors should closely monitor regional economic fundamentals and geopolitical risks to make informed decisions about their Asian FX positioning.
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