The Russian invasion of Ukraine has caused commodity prices to go up, and investors have raised their bearish views on most Asian currencies, with short bets on the Indian rupee at a near two-year high, according to a Reuters poll on Thursday.
The survey of 13 respondents showed market participants turned short on the Singapore dollar and extended short bets on the South Korean won the Taiwanese dollar and the Philippine peso The invasion, which Russia called a special operation, has led investors away from risky emerging markets and cause regional bond yields to spike as surging prices stoke worries about how economies recovering from the Pandemic will manage higher inflation in the face of slower growth.
India is the most at risk, as oil prices threaten to exacerbate inflationary risks at a time when retail inflation has already breached the upper limit of the central bank's tolerance band. Bearish bets on the rupee hit their highest level since April 2020. The currency had fallen to a new all time low on Monday.
In a note on Wednesday, analysts at DBS said fuel excise cuts could be necessary to cushion the hit from higher prices, which will widen India's current account deficit and put the central bank's dovish bias in tricky territory. Investors also shorted Indonesia's rupiah and Malaysia's ringgit, as countries that are major commodity exporters that would benefit from sky-high prices.
The risks from commodity export curbs are still there, according to Vishnu Varathan, head of economics and strategy at Mizuho bank.
While IDR's coal export offset provides a unique backstop against 'risk off, it exposes a single-point of failure should coal exports ban be imposed due to domestic shortages. He said that the restrictions on palm oil exports were not similar to the tightening of restrictions on palm oil exports.
Bullish bets on the Chinese yuan have emerged as a regional haven during the Russia-Ukraine conflict, but were still largely healthy.
On Thursday, the yuan traded flat against the U.S. dollar at 6.32. The Thai baht saw long positions cut sharply as the country's tourism sector is likely to be hit by a drop in tourists from Russia due to the conflict and from elsewhere due to fuel prices, further pressuring another net oil importer.
The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. The market is long U.S. dollars, as a score of plus 3 indicates that it is long U.S. dollars.
The results are below positions in the U.S. dollar versus each currency.