Yuan pessimism at five-year high, Asia FX sentiment worsens before Fed decision

SINGAPORE: Pessimism on China’s yuan reached the highest level in more than five years as the world’s second-largest economy kept losing steam, and views on most emerging Asian currencies deteriorated on expectations of a US rate hike next week, a Reuters poll showed.

The yuan’s bearish bets hit the largest level since April 2010, according to the survey of 18 fund managers, currency traders and analysts conducted from Tuesday through Thursday. In April 2010, Reuters started including the Chinese currency in a survey of market positioning in emerging Asian currencies.

The renminbi has fallen to levels seen right after China on Aug. 11 surprised global investors by devaluing the currency. For a second straight day, the People’s Bank of China on Thursday set its daily guidance rate at its weakest level in more than four years. That came as economic data suggested China’s economy needs more stimulus to regain footing. China’s factories were plagued by persistent producer price deflation in November, while exports last month fell more than expected.

Bearish views on most other emerging Asian currencies broadened as the US Federal Reserve is widely expected to raise interest rates next week for the first time in nearly a decade.

November US job creation topped expectations, while September and October figures were revised up. Most primary dealers expect the Fed to increase borrowing costs at its two-day policy meeting opening Dec. 15, a Reuters poll showed, while futures markets imply around an 80 percent probability.

The South Korean won’s short positions rose to their highest since early October as foreign investors have continued to dump South Korean stocks.

Bearish bets on the Indonesian rupiah IDR=ID also touched the highest level since early October. The rupiah on Thursday hit a two-month low on growing corporate dollar demand for year-end payments and repatriations.

Taiwan’s dollar posted the largest bearish bets in more than two months as the sluggish Chinese economy kept hurting the island’s exports. Overseas shipments in November slumped far more than expected, denting hopes for a turnaround in the economy in the fourth quarter after a contraction in July-September. Pessimistic bets on the Indian rupee, the Singapore dollar, the Malaysian ringgit and the Thai baht increased to one-month highs.

The rupee on Dec. 4 fell to its weakest since September 2013. Foreign investors sold a net $1.7 billion in Indian shares and debt in November, the highest sales since August.

Bleak prospects for the Singapore economy hurt the city-state’s currency. Economists have revised their 2015 and 2016 growth forecasts for Singapore down from three months ago, a central bank survey showed on Wednesday. The ringgit came under pressure as global crude prices fell to near seven-year lows, underscoring concerns over Malaysia’s falling oil and gas revenue.

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