Investors stay bullish on Asia FX; won gets boost on GDP data, offshore demand

Investors remained long on most Asian currencies with bets on the Korean won turning bullish for the first time since late August, a Reuters poll showed, as the dollar struggled over speculation the new Federal Reserve chair could take a less hawkish monetary policy approach than other contenders. The poll was conducted between Tuesday and Wednesday, ahead of the Fed's two-day policy meeting, where it kept interest rates unchanged.
The dollar was set for a weekly loss as reports of the US President Donald Trump choosing candidate Jerome Powell as the next head of the Fed weighed on the greenback. Trump had also considered Stanford University economist John Taylor, who was viewed as being more hawkish than Powell. Investors were estimated to have increased bullish bets on the Thai baht and the Chinese yuan, according to a poll of 10 analysts, traders and fund managers.
Traders turned positive on the Korean won, with long positions at their highest since July, cheered by data showing Asia's fourth-largest economy grew at its fastest pace in seven years last quarter and with October inflation close to Bank of Korea's (BOK) 2 percent target. "With GDP growth returning to potential and inflation converging with the BOK's 2 percent target, monetary policy appears overly accommodative compared to the current economic conditions", DBS Group Research said in a note.
South Korea's central bank is expected to raise interest rates for the first time in over six years at its November 30 meeting, months earlier than previously anticipated. Sentiment around the won also got a boost from foreign demand, with appetite for local shares from offshore investors in October hitting its highest level since March. Another supportive factor was improving ties between South Korea and China, as they agreed to move beyond a year-long stand-off over the deployment of a US anti-missile system in South Korea - a dispute that has hurt South Korean businesses.
In other currencies, long positions on the Thai baht increased to their highest level since early September, as the finance ministry's higher growth forecast for this year and upgrade on the estimate for export gains supported risk sentiment among investors. The baht has appreciated more than 8 percent against the dollar this year and is one of the biggest gainers among Asian currencies.
Bullish bets on the Chinese yuan saw a four-fold rise from two weeks ago as companies continued to sell the greenback on growing expectations of the appointment of Powell as the next Fed chair. Meanwhile, the bearish sentiment towards the Philippine peso jumped to its highest since November 2016.
The currency tumbled to an 11-year low last week and has been the worst performer in Asia this year. Traders turned short on the Indonesian rupiah for the first time since December 2016, as sentiment took a hit after the annual inflation rate in October fell to its lowest level since January. With inflation slowing for the fourth straight month, investors see room for further rate cuts by the central bank.
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. The figures include positions held through non-deliverable.