Investors took long positions in all Asian currencies for the first time since June 2017 as an initial trade truce between the United States and China revived appetite for riskier assets.
Long bets on the high-yielding Indonesian rupiah rose to their highest since February 2019, while investors turned bullish on the Indian rupee for the first time in more than five months.
Last week, the Indonesian central bank said it would allow the currency to strengthen in line with market movements. The unit has firmed about 2 percent so far this month, leading gains among its emerging Asian peers.
Bank Indonesia is due to hold its policy review meeting later in the day. A Reuters poll showed the central bank will likely keep rates steady.
A majority of the 12 poll participants also raised their long positions in the Korean won, the Taiwan dollar and the Philippine peso.
Bullish bets on the Malaysian ringgit rose to their highest since February 2019.
The poll was conducted before Malaysia’s central bank on Wednesday surprised markets by cutting interest rates by 25 basis points to 2.75 percent.
Investors, however, scaled back long bets on the Chinese yuan as the spread of a flu-like virus in China stoked fears of a global pandemic.
The coronavirus outbreak has killed 17 and infected nearly 600 people. A major concern is that the virus could spread quickly as millions of Chinese travel at home and abroad during the week-long Lunar New Year holiday.
The Reuters survey is focused on what analysts 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 US dollars. The figures included positions held through non-deliverable forwards (NDFs).
Most Asian currencies were stuck in narrow ranges yesterday ahead of the Lunar New Year holiday, while fears of a China virus outbreak exerted pressure on some markets.
A bellwether for risk sentiment in the region, the yuan weakened 0.2 percent while yields on China’s 10-year government bonds tumbled, reflecting persistent worries about the outbreak as the death toll climbed.
With hundreds of millions of Chinese expected to travel during the new year holiday beginning on Friday in China until Jan. 30, markets feared the transmission rate would accelerate.
However, Chinese efforts to contain the spread, including putting a lockdown on Wuhan – a city of 11 million people at the epicentre of the crisis – has helped calm nerves and limit steeper losses.
With no direction from Chinese markets and a number of other Asian countries set to close for the new year break, trade is likely to be muted next week.
“Today then represents the last day for investors to rejig their portfolios properly ahead of all the market holidays,” wrote Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.
“It is thus, quite understandable that some money would be taken off the table until the true extent of the coronavirus issue becomes obvious. No one ever went broke taking a profit.”
Most Asian currencies were flat, while the Korean won and Thai baht eased 0.2 percent and 0.3 percent, respectively.
The Indonesian rupiah strengthened marginally ahead of the central bank’s policy meeting where Bank Indonesia is expected to keep rates on hold, allowing a series of previous cuts to filter into the economy, according to a Reuters poll.
An improvement in Philippine economic growth at the year-end kept the peso afloat.
However, even as the economy grew 6.4 percent in the final quarter, full-year growth slightly missed the government’s target, nudging up bets for a February rate cut.
A Reuters poll found that investors’ positions on the Indian rupee turned bullish for the first time in more than five months.
The pace of decline in India’s auto sales has eased, while industrial production turned positive in November after a three-month fall, suggesting the country’s economic growth is finally bottoming out, analysts at ANZ said in a note.
However, they urged caution over a full recovery, given the combination of ongoing stresses in the financial sector, inadequate policy transmission and a recent spurt in inflation.
The currency was the region’s worst performer in 2019 after the won, weakening 2.3 percent. — Reuters
