Dollar strength and oil surges deepen bearish bets on Asian currencies

Rising oil prices above $100 a barrel and firmer US Treasury yields are weighing on emerging Asian currencies, with bearish bets on the Philippine peso, Thai baht, Indian rupee and Malaysian ringgit increasing.

Bearish sentiment towards most emerging Asian currencies intensified this week as rising oil prices and higher US Treasury yields strengthened the dollar’s appeal, according to a Reuters poll of analysts and fund managers.

The survey, conducted before the US Federal Reserve raised interest rates on Wednesday, showed that investors increased short positions on several Asian currencies amid concerns over higher energy costs and tighter global financial conditions.

The Philippine peso remained the most heavily shorted currency in the survey. Bearish positions rose to their highest level in more than four months, with the peso having hit record lows three times in September. However, MUFG analysts said the risk-reward balance for long-dollar positions against the peso had become less attractive, citing the currency’s undervaluation and improving domestic fundamentals.

Investor bets against the Thai baht also increased, reaching their most bearish level in nearly two months. Higher oil import costs have weighed on Thailand’s terms of trade, offsetting gains from stronger electronics exports.

Short positions against the Indian rupee and Malaysian ringgit also climbed to their highest levels since July.

Higher oil prices are particularly challenging for energy-importing Asian economies because they raise import bills, put pressure on trade balances and can weaken local currencies. Oil prices rose above $100 a barrel after attacks on Saudi Arabia’s East-West pipeline last week, while stronger US Treasury yields further supported the dollar.

Malaysia, however, could have some cushion from its electronics trade surplus. MUFG analysts said the surplus had been sufficient to offset the impact of a higher energy import bill and saw scope for the ringgit to strengthen, despite risks from higher oil prices and fiscal concerns linked to fuel subsidies.

In Indonesia, investor sentiment towards the rupiah improved after President Prabowo Subianto replaced the finance minister with the deputy finance minister earlier this week. Investors trimmed short positions even though the rupiah has fallen 6 per cent so far this year.

Elsewhere, investors reduced their bullish positions on the Taiwan dollar, Singapore dollar and South Korean won.

The Reuters poll tracks market positioning across nine emerging Asian currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht. Positions are measured on a scale from minus 3 to plus 3, with the figures including positions held through non-deliverable forwards.