Investors increased their bearish bets on the Indian rupee to the highest since 2016, while trimming their long positions in other Asian currencies over the past two weeks, a Reuters poll showed, on a firmer dollar and fears of a global trade war.
The dollar has been rising since mid-February on hopes the U.S. Federal Reserve would signal it was prepared to do more than the three rate hikes that markets have priced in for 2018. The greenback climbed to a three-week high on Tuesday, but fell after the Fed at the end of its policy meeting refrained from suggesting there might be an extra rate rise.
Fears of a trade war have also gripped financial markets following the U.S. decision to impose tariffs on imported steel and aluminium. President Donald Trump is next expected to unveil up to $60 billion in new tariffs on Chinese imports by Friday.
Investors worry this could escalate into a full-blown trade war if China and other countries retaliate with similar or harsher measures, threatening global growth.
The Reuters poll shows long positions in the Malaysian ringgit decreased and were at their lowest in five months. Bullish bets on the Thai baht were trimmed too.
Though the baht has been one of the best performers among its peers so far this year, and economic fundamentals remain strong amid solid exports, exporters see potential U.S. trade protectionism as a major challenge going forward.
Long positions in the Korean won and the Singapore dollar too were scaled back.
Bearish bets on the Indian rupee were at their highest since November 2016 as concerns about the country's swelling current account deficit and worries about foreign portfolio outflows weighed on the currency. The rupee has been one of the worst performers in Asia this year.
However, the poll of 10 analysts, traders and fund managers showed bullish bets on the Chinese yuan remained unchanged. The People's Bank of China raised its benchmark repo rate by a small 5 basis points on Thursday, as a follow-up to the Fed's move overnight to raise U.S. interest rates by 25 basis points, or a quarter of a percentage point.
The poll was conducted between Tuesday and Thursday with the bulk of the responses coming in by Wednesday.
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 U.S. dollars.
The figures include positions held through non-deliverable forwards (NDFs).