Asian exchange rate gains as US rates, Trump’s tariff threats remain in focus: Reuters poll Reuters

Author: Himanshi Akhand

(Reuters) – Bearish bets on most Asian currencies climbed to multimonth highs as the prospect of fewer U.S. interest rate cuts this year continued to fuel demand for dollars, while the threat of potential U.S. tariffs undermined the appeal of riskier Asian assets, Reuters poll shown on Thursday.

Short-term bets on the Chinese yuan rose to their highest since June 2023, while those on the Malaysian ringgit and Indonesian rupiah hit seven-month highs, according to a two-week survey of 13 respondents.

The yuan, which has been near a 16-year low against the dollar, is seen as the most vulnerable to a stronger dollar and higher tariffs under the administration of US President-elect Donald Trump.

China is also Southeast Asia’s largest trading partner and a weaker yuan could send ripples through regional currency markets.

Ahead of Trump’s inauguration on January 20, markets have moved away from Asian assets as his policies of tax cuts, tariff hikes and tougher immigration are likely to boost US prices, bond yields and the dollar.

Moreover, the Federal Reserve’s projection of two rate cuts in 2025, half of what it previously estimated, has markets now fully pricing in just one 25 basis point (bp) rate cut in 2025, with a 60% chance of second reduction.

Higher US rates and the dollar’s yield advantage could fuel capital outflows in emerging Asian markets and weaken their currencies.

“The external environment could limit how far Asian central banks can ease given the weakness in Asian exchange rates seen since the start of the Fed’s tapering cycle,” DBS analysts said in a note.

The US Federal Reserve has cut rates by 100 bps since September.

DBS added that there is a conflict of domestic and external priorities for Asian central banks and that less export-oriented economies may experience less price volatility.

Taiwan dollar short positions were at their highest level since May 2024.

Bearish bets on the Indian rupee, which posted its ninth straight weekly decline last week, were the most since July 2022.

Singapore dollar short positions were at their highest level since October 2022.

“While Singapore may be directly shielded from escalating US tariffs, it would still be significantly exposed to an indirect impact through slower global growth and spillovers from slowing Chinese exports,” Citi analysts said.

Citi’s base case is for the Monetary Authority of Singapore (MAS) to ease policy settings in January due to recent disinflation trends and challenges to growth resilience.

The South Korean won is currently the shortest Asian currency, according to a survey. It posted its worst annual decline in 16 years in 2024 as government efforts to boost the market were overshadowed by signs of slowing exports and domestic political turmoil.

The Asian Currency Positioning Survey focuses on what analysts and fund managers believe are the current market positions in nine emerging Asian currencies: the Chinese yuan, the South Korean won, the Singapore dollar, the Indonesian rupiah, the Taiwan dollar, the Indian rupee, the Philippine peso, Malaysian ringgit and Thai baht.

The survey uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates that the market is significantly long for the US dollar.

Figures include positions held through non-deliverable forwards (NDFs).

The survey findings are listed below (US dollar positions against each currency):

DATE

January 9, 25 1.65 1.75 1.34 1.20 1.18 1.69 0.99 0.65 0.76

December 12, 24 1.15 1.86 0.83 0.87 0.82 1.43 0.65 0.53 0.26

November 28, 24 1.32 1.45 1.12 1.03 1.10 1.13 0.76 1.13 0.66

November 14, 24 1.14 1.61 0.80 0.81 1.07 0.87 0.65 1.18 0.90

31 October 24 0.30 1.06 -0.03 0.59 0.60 0.82 0.11 0.81 0.09

October 17, 24 -0.43 0.26 -0.44 0.04 0.24 0.67 -0.40 0.26 -0.28

October 3, 2024 -1.14 -0.79 -1.26 -1.08 -0.59 -0.04 -1.18 -0.70 -1.45

September 19, 2024 -0.67 -0.90 -1.12 -1.18 -0.66 0.33 -1.30 -1.10 -1.33

September 5, 24 -0.85 -1.09 -1.26 -1.05 -0.77 0.21 -1.46 -1.00 -1.22

August 22, 24 -0.62 -0.93 -1.08 -1.26 -0.70 0.21 -1.57 -1.03 -1.16