Asia FX sentiment worsens on US rate hike views; yuan exception

Sentiment on the Indian rupee turns slightly negative

Sentiment towards most emerging Asian currencies deteriorated in the last two weeks, a Reuters poll showed on Thursday, as expectations grew that the US Federal Reserve will raise interest rates as soon as September.

China's yuan bucked the trend as investors breathed more easily after the authorities' support measures for the stock market reduced share prices volatility, according to the survey of 20 fund managers and currency analysts conducted between Tuesday and Thursday.

Long positions in the yuan rose to the largest in one month, encouraged by the central bank's consistent efforts to stabilise the currency by keeping the daily guidance steady.

By contrast, most regional currencies reported more bearish bets as Fed officials including Chair Janet Yellen expected a rise in US interest rates this year.

Asian Development Bank also cut its 2015 and 2016 growth forecasts for China and the rest of Asia, hurting regional currencies.

Bearish bets on the Thai baht hit the largest since January 2014 as the currency touched six-year lows. A deputy prime minister said a weaker baht will help the country's exports and help boost a struggling economy more than an interest rate cut.

Still, some offshore funds expected a further rate cut, adding to pressure on the baht. Thai importers' dollar demand for month-end payments also hurt the baht.

Short positions on the South Korean won were the largest since late November as the currency hit a three-year low.

South Korea's economic growth more than halved in the second quarter from the previous three months to record the weakest expansion in six years due to a deadly virus outbreak, dry weather and poor exports. Offshore funds continued to sell the won as foreign investors retreated from the Seoul stock market.

Pessimism on the Singapore dollar was the highest since late March, when bearish bets stood at a six-year peak due to expectations of further monetary stimulus.

The Monetary Authority of Singapore in April surprised markets by holding off from more easing, but a subsequent, unexpected contraction in the economy during the second quarter revived speculation that the MAS will ease.

On Tuesday, however, the MAS doused those expectations, saying that the current policy settings were appropriate given the expectation that prices will rise by next year.

The Philippine peso's short positions hit a 10-month peak. The country will likely miss its exports growth target of 8-10% this year after overseas sales contracted in the first five months of 2015, its trade secretary said on Wednesday.

Short positions in the Taiwan dollar rose to the largest since early January as the island's export orders fell for a third straight month in June on weak demand from China and other emerging markets. Foreign investors were net sellers in Taiwan's stock market so far this month.

Sentiment on the Indian rupee turned slightly negative, reflecting the regional falling trend.

The Malaysian ringgit's bearish bets eased a bit despite a political storm raging around Prime Minister Najib Razak after a Wall Street Journal report on state-fund 1MDB alleged that $700 million had been transferred into accounts held by Najib.

Reuters has not verified the Wall Street Journal report.

Najib has denied taking any money for personal gain and said the corruption allegations are part of a malicious campaign to force him out of office.

Malaysia's central bank was spotted intervening to support the worst-performing Asian currency so far this year, traders said. Government's bond prices also rose on foreign inflows.

Pessimism on the Indonesian rupiah weakened slightly although the currency hit a 17-year low. Indonesia's authorities repeated pledges to curb volatility in the currency market.

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).