Bearish positions on the Chinese yuan eased slightly in the last two weeks, a Reuters poll showed, as markets were wary of central bank intervention after it ramped up efforts to stabilise a faltering currency. After letting the yuan fall at the start of the year and triggering a destabilising shakeout in global markets worried about China's slowing economy, the People's Bank of China (PBOC) rolled out a barrage of steps to try and quell speculation of further currency depreciation.
Those measures have turned traders cautious, with a survey of 19 fund managers, currency traders and analysts conducted from Tuesday through Thursday showing short positions on the renminbi have eased. Pessimism over most emerging Asian currencies, however, grew as continuous slides in oil prices dampened risk appetite, according to the poll. Perceived policy missteps by Beijing in the wake of the latest yuan declines and a slowing Chinese economy have added to the general concerns over the rout in the price of oil, triggering turmoil in financial markets.
In an attempt to restore confidence, regulators in China are tightening on cross-border outflows from banks, sources told Reuters. The central bank said it will start implementing a reserve requirement ratio for some banks in the offshore yuan market next week. Last week, the PBOC was suspected of intervening to drain liquidity in the offshore market, resulting in a record high of 94 percent in implied overnight interest rates for the yuan in Hong Kong.
In the previous survey published on January 7, bearish bets on the Chinese currency hit a near six-year high amid views that the central bank may allow faster depreciation. Pressure on the yuan has risen as the world's second-largest economy continued to lose steam with growth in 2015 at its slowest in a quarter of a century.
The frail economy has stoked expectations of further policy stimulus, but those hopes haven't translated into improved views on emerging Asian currencies. The tumble in oil prices has inflamed concerns about a slowdown in global demand, with a cooling China darkening the outlook further. Crude futures have been on a freefall with US oil touching its lowest since 2003 on a supply glut and a slowing global economy. The Indian rupee's short positions hit the largest since August 2013 as equity outflows pushed the currency to its lowest in about 2-1/2 years.
Bearish bets on South Korean's won hit the largest since late August 2015 with the currency staying around a 5-1/2-year low as foreign investors continued to sell it along with Seoul shares. The Taiwan dollar suffered the largest short positions in five months after the island's independence-leaning opposition leader won Saturday's presidential election, raising fears of escalating tensions with China. Foreign investors continued to unloaded local stocks.
The island's currency hit a near seven-year trough with data showing export orders fell the most in six years in 2015. That cemented bets on a further interest rate cut. Pessimism on the Singapore dollar grew to the most since early October as the city-state's exports fell more than expected in December.
Short positions in the Malaysian ringgit and the Philippine peso hit their largest in more than two months. By contrast, sentiment towards Indonesia's rupiah improved, defying a central bank rate cut last week and a security scare after explosions and gunfight in Jakarta left seven people dead in an assault claimed by Islamic state. The rupiah scored the smallest short positions among emerging Asian currencies as investors sought higher yields on falling inflation and a shrinking current account deficit.
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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