Asian currency bearishness heats up, expectations of the Fed's interest rate cut weaken, exacerbate the strength of the US dollar

The Zhitong Finance App noticed that analysts have turned bearish on most Asian currencies, and their short bets on the Indian rupee are at a one-year high. Because it is expected that the Fed's interest rate cuts will weaken and the US dollar will strengthen, making risky assets in Asia unattractive.

A two-week survey of 11 analysts on Thursday showed that short positions in the Korean won, Philippine peso, and Indonesian rupiah were at their highest level since July 25.

Bullish bets on RMB, SGD, MYR, and THB have also been drastically reduced since early October.

Against the backdrop of weakening expectations of the Federal Reserve's drastic interest rate cuts and uncertainty about the US election, rising demand for the US dollar weakened investors' confidence in Asian currencies.

The US dollar index, which measures the exchange rate of the US dollar against the six major currencies, has risen 3% since September 30. The index currently stands at 103.57, and this level last reached a high at the end of July.

In India, the rupee fell below 84 rupees per dollar last week. This is the level that the Bank of India has been defending for more than two months because the recent surge in oil prices may increase the bills of net importers, while the withdrawal of foreign capital from domestic stock markets puts pressure on the local currency.

The findings came before the central banks of Thailand, the Philippines, and Indonesia announced interest rate decisions on Wednesday.

The Bank of Thailand and the Central Bank of the Philippines (BSP) cut interest rates, while Bank Indonesia maintained the status quo.

Eugenia Victorino (Eugenia Victorino), head of Asian strategy at Skandinaviska Enskilda Banken, said: “Although fundamentals suggest that interest rates should now be lowered to a neutral level, the weakening peso should make the Bank of the Philippines cautious about the pace of easing and carefully move faster than the Federal Reserve.”

In Thailand, despite government support for interest rate cuts, the Thai baht is still the second-best performing currency in Asia this year. It has risen nearly 3% so far this year, second only to the Malaysian ringgit.

As Malaysia became the only net exporter of oil and gas among Asia's major emerging economies, fluctuations in oil prices have shaken investors' confidence in the ringgit.

Meanwhile, short positions in the NTD reached their highest level since August 8.

According to a report, the Biden administration is considering restricting sales of advanced AI chips to some countries, putting pressure on confidence in Taiwan's economy, which relies on exports and is mainly based on technology.

The Asian currency position survey focuses on the opinions of analysts and fund managers on the current market positions of nine Asian emerging market currencies. The nine currencies are the Chinese yuan, the Korean won, the Singapore dollar, the Indonesian rupiah, the New Taiwan dollar, the Indian rupee, the Philippine peso, the Malaysian ringgit, and the Thai baht.