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Short Bets on Asian Currencies Seen Creeping Up On Fed Taper Outlook

Evergrande crisis adds to weakness in exchange rates as dollar rises to its strongest level in a month

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon

 

Bearish bets on most Asian currencies rose marginally in the run-up to a US Federal Reserve meeting where it hinted at possible rate increases next year, while bullish bets on the yuan reversed, according to a Reuters poll on Thursday.

In its policy meeting on Wednesday, the Fed left key rates unchanged and didn’t announce the start of its asset purchase tapering, as expected, but Chair Jerome Powell said board members believed tapering could conclude in the mid of next year, paving the way for potential rate hikes.

The Fed’s stance sent the dollar to its highest level in a month on Thursday, while its counterparts in Asia were broadly unchanged.

 

Evergrande Impact

Mildly bullish positions in the yuan from two weeks ago were reversed, the poll of 11 respondents showed, on concerns over the fate of embattled property developer China Evergrande – Asia’s biggest junk bond issuer and a key component of the Chinese economy.

Losses in the yuan, however, were capped after the heavily indebted property giant said it would make a bond coupon payment on Thursday, easing some fears of a possible default. Financial markets were closed in China and Taiwan through Tuesday and in South Korea until Wednesday for the Mid-Autumn Festival holiday.

Short bets on the South Korean won climbed to their highest level since March last year, while bear positions rose significantly in the Thai baht and the Philippine peso.

 

Thai Infections

As Thailand continues to reel under its most severe coronavirus outbreak, the government announced plans on Wednesday to speed up vaccinations and said it would introduce urgent stimulus measures.

Most of Thailand’s 1.5 million infections and 15,000 deaths occurred since April, following a year of successful containment during which its key tourism sector collapsed.

The Philippines eased some curbs last week, allowing small businesses in its capital region to reopen after being shut for weeks as the country fights one of Asia’s worst Covid-19 outbreaks.

Long bets on the Indonesian rupiah firmed after the country’s central bank left policy steady earlier this week and kept its target range for 2021 growth unchanged after a downgrade in July.

The Reuters survey is focused on what analysts 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.

 

  • Reuters with additional editing by Mark McCord

 

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Mark McCord

Mark McCord is a financial journalist with more than three decades experience writing and editing at global news wires including Bloomberg and AFP, as well as daily newspapers in Hong Kong, Sydney and Melbourne. He has covered some of the biggest breaking news events in recent years including the Enron scandal, the New York terrorist attacks and the Iraq War. He is based in the UK. You can tweet to Mark at @MarkMcC64371550.

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