Investor sentiment towards Asian currencies improved over the past two weeks, a Reuters poll showed, as doubts over the passage of tax reforms under US President Donald Trump will likely keep the dollar on shaky ground. A poll of 12 respondents showed investors have turned bullish on the Singapore dollar and Indian rupee, while bullish bets on the Thai baht, Indonesian rupiah and Malaysian ringgit have improved.
While the dollar index firmed on Thursday on expectations that Trump would pick a more hawkish replacement for incumbent Federal Reserve chief Janet Yellen, market players expect the dollar to drift in the year ahead. Trump's struggle to garner support for a budget resolution vital to his tax overhaul plans is seen by respondents as the biggest hurdle to the dollar's ascent in the coming year.
However, sentiment for the Chinese yuan was at its worst since early March. Three of 12 respondents shared their positions on the yuan after China's GDP data early in the day showed growth in the world's second-largest economy slowed slightly in the third quarter. A modest loss of momentum was expected as the government tries to cool a red hot property market and curb riskier lending.
Investor focus is also on a once-in-five-years Communist Party congress, which began on Wednesday, that is expected to lay out new policy initiatives and will deepen market-oriented reform of its exchange rate as well as its financial system. However, history has shown that the congress can be light on policy details.
Spot yuan was marginally up on Thursday at 0643 GMT after weakening as much as 0.2 around midday, but is thus far headed for its best year since 2008. "The yuan being kept stable will be more helpful to allow the economy to adjust to a somewhat softer growth trajectory going forward," said Chang Wei Liang, FX strategist at Mizuho Bank in Singapore.
"given that reforms will probably be of a higher priority right now compared to just supporting growth, as it was in the past." Meanwhile, the rupiah saw a resurgence in bullish sentiment as Indonesia's central bank is expected to stand pat on rates at a meeting on Thursday after surprise cuts in the previous two.
Bank Indonesia (BI) made 25-basis-point cuts at its August and September meetings, in a bid to boost sluggish bank lending and private consumption. Bearish bets on the Indian rupee have reversed over the past two weeks and now long positions are at their strongest in over a month.
India's inflation rate remained steady in September from the previous month, data showed last week, smudging hopes of a rate cut by the central bank that expects higher inflation in the coming months. The Singapore dollar turned bullish after the city-state's central bank held its exchange-rate based monetary policy steady last week, but changed a reference to maintaining a neutral policy stance for an extended period, a move that analysts said created room for policy tightening next year.
The poll also showed long positions in the ringgit rising to their highest since mid-June. 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 US dollars.
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