Investors turn bearish bets on Asian FX after Fed hikes for longer

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Investors turn bearish bets on Asian FX after Fed hikes for longer

On Thursday, investors placed bearish bets on all Asian currencies after the US Federal Reserve hiked rates for longer, helping the dollar regain its lost momentum, a Reuters poll showed on Thursday.

The Indian rupee fell further to hit a three-month high while traders turned short on the Chinese yuan for the first time since December last year amid doubts about the country's economic recovery, a fortnightly poll of 11 respondents showed.

It was last month that analysts turned bullish on all Asian FX after a subdued dollar and China's move to drop its pandemic border controls earlier this year bolstered the upbeat sentiment. Recent comments from the Fed about hiking rates for longer dampened sentiment.

Since then, a host of strong economic data from the United States, including its stubbornly high inflation print, has been pointing towards resilience in the country's economic conditions, cementing bets that the Fed will keep hiking rates for longer.

Minutes from the Jan. 31 -- Feb. 1 Fed meeting on Wednesday implied that Fed officials would stay on its rate hike path until data shows inflation was under control.

The Fed minutes provided adequate relief to avert a sustained meltdown but were not enough to blindly resume 'Fed pivot plays, said Vishnu Varathan, head of Economics and Strategy at Mizuho Bank.

They turned bearish on the Thai baht, Asia's best-performing currency this year, the Singapore dollar and the Malaysian ringgit for the first time in three months.

I do not think Fed repricing changes the bigger picture. Christopher Wong, analyst at OCBC, said that while the rate hikes would have a positive impact on Asian FX, any positive data from China post its decision to reopen borders will fuel appreciation among Asian FX.

In the past week, the central bank of the Philippines, Bangko Sentral ng Pilipinas BSP, hiked its overnight borrowing rate to 6 per cent and said it was unlikely that they would stop hiking interest rates in the next meeting, but flagged a possible end to the tightening cycle in the first half of this year.

A majority of the Reserve Bank of India's policy committee members stated that it would be premature to lower the guard against inflation.

Goldman Sachs analyst said that countries with still active monetary cycles could see a lot of spillovers on the respective rate markets from any further volatility in the Fed outlook.

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 long U.S. dollars.

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