Asia FX pessimism deepens on Fed rate hike view, China uncertainty

SINGAPORE (Reuters) - Bearish sentiment toward emerging Asian currencies deepened in the last two weeks as speculation of an imminent U.S. interest rate hike grew and as confusion flared again over China’s foreign exchange policy, a Reuters poll showed on Thursday.

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Top Federal Reserve officials have recently suggested the U.S. central bank may raise borrowing costs as early as June or July on encouraging economic data, boosting the dollar and forcing global investors to price in a near-term tightening.

Markets had seen the odds for a June hike at almost zero after Federal Reserve Chair Janet Yellen said in late March that the central bank may not hurry to raise interest rates.

Pessimistic bets on the Chinese yuan CNY=CFXS rose to the largest since early February, according to the survey of 20 fund managers, currency traders and analysts conducted from Tuesday through Thursday.

The renminbi on Wednesday hit a 3-1/2-month low as China’s central bank set its daily guidance rate at a five-year trough, reflecting the dollar’s broad strength. The People’s Bank of China has often fixed the midpoint in line with the greenback’s movements. [CNY/]

Worries are also growing that a promising improvement seen in Chinese economic data earlier this year may be fizzling out.

Sentiment on the South Korean won KRW=KFTC was worst among regional currencies as bearish bets on the currency hit the highest since mid-February.

The won on Tuesday fell to its weakest in more than two months as the Bank of Korea is predicted to cut interest rates to help Asia’s fourth-largest economy weather the aftermath of restructuring of shipbuilding and shipping industries.

Sentiment toward the Indian rupee INR=D2 turned pessimistic for the first time since mid-March, with its short positions at a three-month peak, on worries that a Fed hike may spur capital outflows. Importers' dollar demand also weighed on the currency.

Views on Indonesia's rupiah IDR=ID also became gloomy for the first time in almost four months. Its short positions touched the largest since early January as the country is seen more vulnerable to the Fed's rate hike due to fiscal and current account deficits.

Foreign investors have swung to being net sellers of Indonesian government bonds so far this month after increasing holdings of the country’s debts over the previous seven months.

Standard & Poor’s, which raised its outlook on the country’s speculative-grade sovereign rating to positive from stable last year, is expected to announce the results of its rating review for the country this month.

Malaysia's ringgit MYR=MY saw the largest pessimistic positions since mid-November as a strong dollar caused investors to dump the best-performing emerging Asian currency so far this year.

Investigations on a scandal-hit Malaysian government fund also widened. Singapore closed down BSI’s operations in the city-state, while Switzerland began criminal proceedings against the private bank, in the biggest international crackdown on financial entities dealing with 1Malaysia Development Bhd (1MDB).

The Thai baht's THB=TH bearish bets grew to the highest since early October as foreign investors sold local bonds in the last two weeks.

The Taiwan dollar's TWD=TP short positions grew to a near four-month peak on equity outflows amid concerns over slowing growth.

Bearish bets on Singapore's dollar SGD=D3 rose to the largest since early February as the city-state on Wednesday cut its export forecasts for this year after the trade-reliant economy barely grew in the first quarter.

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 PHP=PDSP, 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.

Additional reporting by Krishna Eluri in BENGALURU, Neha Dasgupta in NEW DELHI and Masayuki Kitano; Editing by Kim Coghill