Since the Russian-Ukraine conflict broke out in February, investors were most bullish on the Singapore dollar and Thai baht, as China easing its COVID curbs and hopes of major central banks tempering the monetary policy lifted sentiment, a Reuters poll showed.
Long positions on most other emerging Asian currencies also fell, with those on the Malaysian ringgit and South Korean won at around two-year highs, according to a fortnightly poll of 10 analysts.
In other words, sentiment on the yuan of China was mostly neutral, while investors were bullish on the Philippine peso for the first time since July 2021.
The poll was conducted before the U.S. Federal Reserve'sFederal Reserve's widely anticipated 50 basis points interest rate hike on Wednesday, which was a slowdown after four straight 75 bps hikes that came with a caveat of the need for further rate hikes despite the risk of a recession.
Poon Panichpibool, market strategist at Krung Thai Bank said that central banks in Southeast Asia will keep raising rates because of the ongoing rate hikes from the Fed.
The pace of raising rates could be slower for most regional banks because they don't see a lot of pressure on their local currency right now, as they see a lot of pressure on their local currency. Long positions on the Thai baht were at their highest level since February, while their positions on the Singaporean dollar were highest since early February.
Panichpibool expects the baht to be much stronger than its current level of 34.76 per dollar by the end of the first quarter of 2023, though the risk of a U.S. recession was a medium-term risk.
Recently, investor appetite for risky Asian assets increased after China, the region's largest trading partner and manufacturing powerhouse, began to easing its domestic zero-COVID curbs, which helped boost the outlook for regional growth.
The slowdown in Chinese growth has been one of the biggest drivers of dollar strength. A turnabout of that impulse should benefit high-beta, risk-sensitive and commodity-linked FX, wrote Barclays' analysts in a note.
The investors marginally cut their short positions on the Indian rupee and the Indonesian rupiah, though both remained the most shorted, by a healthy margin, among the nine regional currencies in the poll.
The rupee and the rupiah are among the worst performers in the region this year, going for declines of 8.8 per cent and 10 per cent.
DBS analysts expect the rupee to consolidate between 80 and 84 per dollar by 2024, and the rupiah to stabilize between 15,000 and 16,000 per dollar over the next two years.
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 that the market is long the U.S. dollar.
The results are below positions in the U.S. dollar versus each currency.