Bets on further weakness in China's yuan fell by more than half in the last two weeks as the central bank continued to intervene to stabilise the currency after its surprise devaluation last month, a Reuters poll showed. The steadier yuan, in turn, helped calm nerves in the rest of Asia, with sentiment toward other emerging market currencies becoming less bearish despite dollar strength ahead of the US Federal Reserve's interest rate decision later on Thursday.
-- Asia FX pessimism eases
The People's Bank of China have been frequently spotted intervening to support the yuan since its August 11 devaluation, not only in spot and forward markets but also in offshore markets. China will conduct checks on firms' foreign exchange buying to prevent speculation, an official at the country's foreign exchange regulator said on Thursday. Beijing has scrambled to steady the yuan since the devaluation spurred heavy selling and capital outflows. As a result, its foreign exchange reserves in August fell by a record.
Pessimism over other emerging Asian currencies eased, according to the survey of 19 fund managers, currency traders and analysts conducted from Tuesday to Thursday.
Investors are focusing on whether the US Federal Reserve will announce an interest rate hike later on Thursday for the first time in almost a decade, and if the resulting increase in US yields could prompt investors to pull more money out of emerging markets. Short positions on the South Korean won's fell to the lowest since late June after Standard & Poor's raised the country's sovereign credit rating and foreign investors turned to net buyers of Seoul shares after dumping equities in the previous 29 consecutive sessions.
Bearish bets on the Singapore dollar shrank to the smallest since early July on growing demand for safer assets as uncertainty over the Fed's plans and China's economic slowdown roiled global financial markets. Though its economy is cooling along with the rest of Asia's, Singapore has a triple-A credit rating. Singapore's currency also found support after the ruling party swept a general election last week by a bigger margin than many had expected, ensuring the continuity of fiscal and economic policies.
Short positions on the Indian rupee were the smallest in the region peers as improved economic stability attracted bond inflows. Bearish bets on the Malaysian ringgit's bearish fell to the lowest since late July, even as Swiss authorities froze funds in Swiss banks amid investigations into Malaysia's troubled state investment fund 1Malaysia Development Berhad (1MDB). Traders reduced short positions after an unexpected, albeit small, increase in Malaysia's foreign exchange reserves in the last two weeks of August.
Though reserves remained near the lowest levels since 2009, traders believe the central bank was spending less in trying to support the ringgit as the market thinned. Short positions in the Taiwan dollar, the Thai baht and the Philippine peso also fell to the smallest since July. Bearish bets on the Indonesian rupiah eased to the smallest since early August, with the central bank spotted intervening to support the currency.
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 US dollars. The figures include positions held through non-deliverable forwards (NDFs).
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