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Investors stayed bearish on most emerging Asian currencies and turned short on Thailand’s baht for the first time in three months, as uncertainty from Russia’s invasion of Ukraine and inflationary risks remained, a Reuters poll found on Thursday.

The Chinese yuan held on to long bets, though they slipped to their lowest in nearly six months, while short bets rose on the Philippine peso and the Malaysian ringgit, a fortnightly poll of 13 respondents showed.

Market participants turned short on the baht , as surging COVID-19 infections in China dashed hopes for a recovery in tourism revenue, while rising commodity prices also dented sentiment for the country being a net energy importer. read more

Across the region, currencies have been largely subdued as the U.S. dollar found support after the U.S. Federal Reserve raised interest rates by 25 basis points and officials signalled more aggressive measures to contain unexpectedly high inflation.

China’s yuan eases, shrinking yield premium drags swaps to lowest since 2020

Meanwhile, rising oil prices also underpinned bearish mood in the region. While crude has slipped from a peak hit earlier this month, it still remains elevated enough to threaten bigger trade deficits and greater cost-pull inflation.

Singapore reported on Wednesday its fastest rise in headline prices in nine years, while central banks in Indonesia and the Philippines have noted risks from supercharged prices.

“Despite the backdrop of war, we expect the macro outlook to be driven primarily by inflation… Inflation will now get a further lift for at least a few months,” Ajay Rajadhyaksha, global chairman of research at Barclays, said in a note.

“Investors still believe that central banks such as the Fed will not have to over-hike into a recession to wrestle inflation lower. We agree with this view. But the risks are far greater than a month ago.”

To that end, analysts at ING said in a note on Wednesday that they expect the Monetary Authority of Singapore to resort to additional tightening at its upcoming meeting in April.

Currencies of the region’s major oil importers like India saw one of the highest short bets, while those on major oil exporter Indonesia were cut significantly.

The yuan, which had emerged as a safe-haven bet in the initial days of the Russia-Ukraine conflict and whose strength supports regional peers, has also come under pressure.

Rising COVID cases, however, mean the government may provide more stimulus, providing some support to the currency.

Bearish positions in the Taiwan dollar hit their highest since June 2019, despite the country’s central bank surprising markets with an interest rate hike last week.

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.

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