U.S. dollar, ringgit at 5-year highs as investors eye recovery

U.S. dollar, ringgit at 5-year highs as investors eye recovery

The Reuters poll showed that bullish bets on the Singapore dollar and the Malaysian ringgit were consolidated to scale five-year highs as a fizzling U.S. dollar rally and China's pivot from its strict COVID 19 curbs boosted investor appetite for Asian emerging currencies.

After a massive downturn against the dollar last year, investors were bullish on all nine Asian emerging currencies for the first time in nearly two years due to the U.S. Federal Reserve's aggressive monetary tightening.

Suresh Ramanathan, of RHB Group, said that the Asian currency positions are likely to remain steady with a bias to appreciate given the fact markets are pricing in a smaller rate hike by the U.S. Federal Reserve.

The appetite for high-risk Asian assets has been boosted by a double dose of China, a manufacturing powerhouse and the region's largest trading partner, dismantling its stringent COVID 19 curbs and improving bets that local central banks are nearing the end of their tightening cycle.

In February, the Malaysian central bank surprised the market by standing pat on its benchmark interest rate after four consecutive hikes in 2022, while Bank Indonesia signalled its tightening cycle was ending due to cooling inflation.

Long positions on Singapore's dollar and Malaysian ringgit fell to its highest level since January 2018, while those on the Indonesian rupiah went up sharply from a previous survey to multi-year highs, a fortnightly poll of 10 analysts showed.

The Singapore dollar, the only Asian currency to have appreciated last year, has moved 2.1 per cent so far to trade at its highest since April 2018 and has started on a strong footing in 2023, the highest since April 2018.

In December Singapore's core inflation remained elevated and showed signs of stickiness, strengthening our conviction for the MAS to tighten policy in April, supporting a stronger Singapore dollar in the medium term, Maybank analysts said.

The U.S. Federal Reserve will start its two-day policy meeting next week, and markets have priced in a 25 basis-point interest rate hike, a step down from the central bank's 50 bp and 75 bp increases seen last year.

The poll also showed bullish bets on the Philippine peso at the highest level in more than two years, with long positions slightly easing on Thai baht, China's yuan and South Korean won.

For the first time in a year, long positions on the Indian rupee were observed, but the bets on the unit were the least in comparison to its peers.

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 findings are below positions in the U.S. dollar versus each currency.