Asia currency sentiment improves; bearish yuan bets steady

SINGAPORE - Sentiment toward emerging Asian currencies improved in the last two weeks as investors sought higher yields after major central banks, including the Bank of Japan, affirmed a loose policy stance, while oil prices rebounded, a Reuters poll showed.

The Chinese yuan's short positions, however, barely moved as the authorities continued efforts to stabilise the faltering currency helped counter concerns over a slowdown in the world's second-largest economy, according to the survey.

Beijing has taken a series of measures to calm the currency market, such as imposing limits on cross-border flows from yuan-dominated capital pools and requiring intensified checks on related transactions.

Views on the renminbi stayed pessimistic as the economy keeps losing steam and needs more stimulus.

Most other emerging Asian currencies saw smaller bearish bets in the wake of the BOJ's surprise easing last week when it moved interest rates below zero, according to the poll of 21 fund managers, currency traders and analysts conducted from Tuesday through Thursday.

William Dudley, president of the Federal Reserve Bank of New York, said on Wednesday that financial conditions have tightened considerably in the weeks since the US central bank raised interest rates and policy makers will have to take that into consideration should that phenomenon persist.

The BOJ added negative interest rates on central bank deposits to its massive asset-buying programme on Jan. 29, stunning financial markets that expected no action or a moderate increase in asset purchases.

European Central Bank chief Mario Draghi repeated that it stands ready to review monetary policy next month to shore up growth and inflation.

Short positions on the Malaysian ringgit shrank to the smallest since mid-May 2015 as a rebound in crude eased concerns over sliding oil and gas prices hurting government revenue.

The government kept this year's fiscal deficit target at 3.1 per cent of gross domestic product, defying expectations of a wider gap.

Those factors helped the ringgit outperform regional peers so far this year. In 2015, the Malaysian unit was the worst-performing Asian currency.

The Indonesian rupiah's short positions fell to the lowest since mid-October as investors chased one of the highest government bond yields in the region.

On Tuesday, the country sold 15 trillion rupiah (S$1.56 billion) worth of bonds at an auction, above the indicative target of 12 trillion rupiah, the finance ministry said.

Sentiment on the Thai baht became least bearish since mid-April when views on the currency were optimistic.

The baht was the second-best performing emerging Asian currency so far this year on bond inflows.

Bearish bets on the Singapore dollar and the Taiwan dollar fell, tracking improvements in sentiment on regional peers. India's rupee and the Philippine peso reported smaller pessimistic bets.

Short positions on the South Korean won eased, but views on the unit were the worst among emerging Asian currencies.

Offshore funds pushed the won down to a 5-1/2-year low on Wednesday as tumbling exports and cooling inflation increased pressure on the Bank of Korea to cut interest rates.

The won is seen unlikely to benefit from the BOJ's easing as South Korean exporters fiercely compete with Japanese rivals, analysts said.

The 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 US dollars.

The figures include positions held through non-deliverable forwards (NDFs).