China interventions grinding down yuan bears, inflows boost Asia FX bulls

By Jongwoo Cheon

SINGAPORE (Reuters) – Bearish bets on the Chinese yuan fell to a more than three-month low in the last two weeks as the central bank stabilised the currency after it fell through a key psychological level, a Reuters poll showed.

Sentiment on most other emerging Asian currencies grew even more positive, meanwhile, as global investors continued to flock to the region’s stock and bond markets in search of higher yields.

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Bullish bets on some regional currencies were the highest in two to three years, according to the poll of 20 fund managers, analysts and currency traders conducted from Tuesday through Thursday.

Bets on further declines in the yuan  shrank to the smallest since late April, when sentiment on the currency was nearly neutral, according to the survey.

Last month, the renminbi weakened past the psychologically important 6.7 per dollar mark, nearing six-year lows. But it has rebounded 1 percent since then as the central bank intervened to slow down the pace of its depreciation. Recent dollar weakness has also helped the yuan rebound.

Still, the Chinese currency may fall more than 3 percent against the dollar over the next 12 months, given the slowdown in the world’s second-largest economy, a separate Reuters poll showed on Wednesday. The People’s Bank of China will allow it to resume weakening, analysts said.

Disappointing U.S. data in the last few weeks, especially second-quarter economic growth, has caused investors to scale back expectations of a near-term interest rate hike by the Federal Reserve, taking steam out of the dollar.

Other major monetary authorities including the European Central Bank and the Bank of England are expected to ease policy further in the wake of Britain’s vote to leave the European Union.

Such stimulus is expected to push more capital into emerging Asia as investors scour the world for better yields.

The Indonesia rupiah  which offers one of highest yields in Asia – saw the largest bullish bets since April 2014.

South Korea’s won  saw the highest long positions since July 2014 on equity inflows.

Optimistic bets on the Thai baht increased to the largest since April 2013 on capital inflows, while the Taiwan dollar  saw the highest bullish bets since January 2013.

Foreign demand for Indian stocks and bonds lifted the rupee’s  long positions to the largest since April 2015.

The Malaysian ringgit  bucked the trend, however, with short positions edging up on concerns over scandal-plagued state fund 1Malaysia Development Berhad and weak oil prices.

The 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.

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

(Additional reporting by Shaloo Shrivastava in BENGALURU; Editing by Kim Coghill)



Categories: Asia Unhedged, China

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