April 5, 2018 / 7:34 AM / 6 months ago

Long positions in most Asian currencies rise on shaky dollar outlook

(Reuters) - Investors strengthened their long positions in most Asian currencies over the past two weeks, while bearish bets on the Indian rupee were reversed as trade tensions clouded the U.S. dollar outlook.

FILE PHOTO: U.S. Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

Uncertainty around where the U.S.-China trade standoff is headed has dulled the dollar’s appeal.

The dollar index, which was trading up 0.03 percent against a basket of major currencies at 0532 GMT, has recorded five straight quarters of losses into the first quarter of 2018.

The outlook for the greenback remains dim despite market expectations for the U.S. Federal Reserve to adopt a more hawkish monetary stance, with several market players pricing in more than three rate hikes this year.

“Despite the apparent improvement in global risk appetite levels overnight, we are obviously not out of the woods yet with respect to global trade war tensions,” said Emmanuel Ng, FX strategist at Oversea-Chinese Banking Corporation.

Relatively steady short-term Asian currency options, backed by improved foreign investment inflows, indicated a supportive backdrop for local currencies, he added.

The Korean won proved to be the biggest beneficiary of dollar bearishness, with long positions in the currency at their strongest since the beginning of January.

With the U.S.-China trade tensions as backdrop, South Korea and the United States renegotiated a six-year-old trade pact known as KORUS, which has a side-deal that requires South Korea increase the transparency of its foreign exchange interventions.

Also, much of the won’s strength this year is an overhang from stellar gains last year. However, it has seen sharp fluctuations lately, which government officials said early this week they were watching. The currency continues to be on the U.S. currency monitoring list.

Long wagers on the Singapore dollar, Taiwanese dollar, and the Malaysian ringgit also grew, the poll of 12 market participants showed.

Similarly, bearish sentiment on the Indian rupee reversed ahead of a Reserve Bank of India meeting on Thursday.

Despite a weak inflation report, the RBI is seen by markets as having ruled out a rate cut, and is expected to stand pat on rates for a fourth straight time at its impending monetary meeting.

Bullish bets on the Chinese yuan were largely unchanged for a fourth straight time in the past month and a half, although a separate Reuters poll expects the currency to slip marginally against the dollar in 2018.

The Asian currency positioning 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 U.S. dollars.

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

Reporting by Rushil Dutta; Additional reporting by Christina Martin in Bengaluru; Editing by Eric Meijer

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