Bets on further declines in the Chinese yuan hit a five-month high in the last two weeks on expectations that the central bank will allow it to weaken further to support the world's second-largest economy, a Reuters poll showed. Positions on most other emerging Asian currencies were mixed as renewed anxiety over Brexit offset hopes of further global monetary policy easing, according to the survey of 22 fund managers, analysts and currency traders conducted from Monday through Thursday.
The renminbi's bearish positions more than doubled in the last two weeks to the largest since early February, the poll estimated. Since Brexit threw global markets into turmoil, the Chinese currency has lost about 1.6 percent against the dollar, hitting 5-1/2-year lows. The decline has been greater than some other regional currencies such as the South Korean won and Taiwan dollar.
Policy sources told Reuters recently that the People's Bank of China would tolerate a fall in the yuan to as weak as 6.8 per dollar in 2016 to support struggling exporters. Such a drop would mean a depreciation of 4.5 percent for the full year, matching last year's record decline. The yuan was trading around 6.68 on Wednesday afternoon. By contrast, views on some other emerging Asian currencies improved despite the Britain's vote on June 23 to leave the European Union. The stunning decision spurred expectations that global central banks, especially monetary authorities of developed countries, will provide more stimulus to counter the expected fallout from the move. Prospects of a near-term US interest rate hike almost disappeared.
Further policy easing in the West could push yield-hungry global investors into assets in emerging Asia. Indonesia's rupiah was the major beneficiary, with its bullish bets reaching the largest since April 2014 as the country offers one of the highest returns in the region. Adding to the support, Indonesia is launching a tax amnesty programme, which is expected to improve the government's budget shortfall. The Thai baht's optimistic positions edged up to the largest since mid-April as foreign investors scrambled for local equities and bonds.
Bearish bets on the Malaysian ringgit fell slightly on bond inflows, with the central bank expected to cut interest rates. The Singapore dollar - seen as a safe-haven currency in emerging Asia - saw the second-largest bullish bets among regional currencies after the rupiah, indicating risk sentiment remains fragile on fears that Brexit will trigger financial contagion. 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).