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Asian forex decline hits record high on hawkish Fed, China growth worries: Reuters poll

South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. 100 dollar bills in this photo illustration taken December 15, 2015. REUTERS/Kim Hong-Ji//Illustration/Files

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  • Short bets raised on all Asian currencies
  • Bearish bets on the Indonesian rupiah at more than 2 years
  • Indian rupee short positions over 3.5 years

June 16 (Reuters) – Bearish bets on several Asian currencies hit a record high as rising U.S. interest rates supported the dollar as repeated COVID-19 lockdowns threatened to disrupt the economic recovery in China, according to a Reuters poll found Thursday.

Short positions in the South Korean won, Singaporean dollar, Malaysian ringgit and Philippine peso hit record highs, according to the biweekly poll of 10 respondents.

The greenback hit its highest level in two decades this week as searing US inflation numbers raised the likelihood of more aggressive interest rate hikes from the Federal Reserve.

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On Wednesday, the Fed announced a widely expected 75 basis point (bp) hike that markets read as a proactive move to curb inflationary pressures, helping Asian currencies strengthen. Survey responses were compiled prior to the Fed’s decision.

“We expect investor sentiment to remain volatile and financial market conditions to remain choppy in 3Q22,” Selena Ling, head of research and strategy at OCBC, wrote in a note, adding that the The magnitude of Fed hikes this year could be between 50 basis points and 75 basis points.

Fed rate decisions have often been a yardstick for local central banks to frame policy. However, given the delayed post-COVID-19 economic recovery in emerging Asia, the pace of hawkish regional central bank policy may vary.

Complicating matters further is China’s tough stance on zero COVID, which has led major cities to enter and exit lockdowns, raising concerns about a meteoric rebound in the world’s second-largest economy. Read more

“I see a strong possibility that China will experience repeat Omicron lockdowns again this year unless it changes its COVID-zero policy,” said Jeffrey Halley, senior market analyst, Asia-Pacific, OANDA.

“China’s growth outlook remains challenging to say the least, even more so if major export markets turn to slower growth as monetary policy tightens.”

Short positions in the Chinese yuan approached an all-time high last month.

Elsewhere, bearish bets on the Indonesian rupiah were at their highest since April 2020. The currency fell to its lowest since October 2020 earlier this week.

Market participants were also disappointed with the Indian rupee hitting a record low on Monday, with shorts at a more than three-and-a-half-year high.

India’s wholesale prices posted their fastest annual rise in more than 30 years, raising expectations for further rate hikes by the central bank, according to data released this week. Read more

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

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

The results of the survey are presented below (positions in US dollars against each currency):

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Poll by Savyata Mishra; Editing by Rashmi Aich

Our standards: The Thomson Reuters Trust Principles.

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