Long Bets On Rupee Hit Over Three-Year High, Peso Bears Return: Poll

Bullish positions on the rupee climbed to a more than three-year high on optimism over economic outlook, a Reuters poll found, while investors turned bearish on the Philippine peso for the first time since April last year. The dollar has hit multi-year lows this week, despite a jump in U.S. yields, on the Federal Reserve’s dovish tone and as risk appetite improved due to vaccination efforts, with investors now looking to high-growth economies that will benefit from a pick-up in global trade. Long-term bearish view on the greenback led to bullish bets being raised on most Asian currencies, including the Chinese yuan, the Indonesian rupiah, Singapore’s dollar, and the Malaysian ringgit, the fortnightly poll of 14 respondents showed.    

The biggest jump in positions was seen in the rupee, which has risen almost one per cent in February on huge foreign fund inflows into equities as the economy looks set to rebound sharply amid a sustained decline in COVID-19 cases and an uptick in business activity. The economy is expected to have returned to growth in the last quarter, according to a Reuters poll, while HSBC predicts it will build on the momentum to grow by double-digits in fiscal 2021.

Stubbornly high inflation and better growth outlook may prompt the Reserve Bank of India (RBI) to raise the reverse repo rate twice by 20 basis points in the second half of this year, Deutsche Bank economists said in a note.

However, the RBI has been dovish of late as it expects inflation to be reined in and high foreign exchange reserves to keep the rupee stable. Long views on the yuan increased slightly, with talks swirling that Chinese authorities may begin to adopt a tighter policy stance soon.That and China’s economic outperformance have made the yuan a mighty rival to the dollar. However, the central bank’s tight leash on the currency has kept investors cautious.

The rupiah was also favoured as markets hoped that Bank Indonesia’s easing cycle had come to an end after it trimmed rates last week for the sixth time since the pandemic started. Southeast Asia’s largest economy is showing signs of growth and its hefty current account surplus is expected to keep the rupiah supported at least through this year, analysts said. 

Meanwhile, investors reversed their positions to go short on the Philippine peso after the government extended curbs in Manila, which were set to end this month, until mass vaccinations begin. Lockdowns in the archipelago were considered one of the world’s longest and strictest as they had shuttered thousands of businesses and left millions out of work, causing the economy to contract by a record 9.5 per cent in 2020.

The Asian currency positioning 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).