Global bond rout depresses Asia FX sentiment

[SINGAPORE] Sentiment towards most emerging Asian currencies turned bearish as increasing doubts about the ability of major central banks to offer fresh stimulus sparked a selloff in global bonds, a Reuters poll showed on Thursday.

The Chinese yuan's bearish bets increased to the largest since late July, according to the survey of 18 fund managers, analysts and currency traders conducted from Tuesday through Thursday.

The renewed speculation of depreciation of the renminbi came after the conclusion of the G20 summit in the city of Hangzhou earlier this month.

Views on most emerging Asian currencies turned pessimistic. Sentiment on those units had been bullish since early August on prospects that major central banks may ease monetary policies further to support their economies, helping investors seek higher yields in emerging Asia.

But those hopes diminished on perceived limits to the extensive easings by major monetary authorities such as the European Central Bank and the Bank of Japan.

Investors also grew wary ahead of policy meetings of the Federal Reserve and the BOJ next week. The Fed is unlikely to raise interest rates this month, but it is seen tightening eventually later this year.

The fading optimism over more stimulus from major central banks lifted bond yields globally, prompting investors to cut some holdings in emerging Asian debts.

Malaysia's ringgit was one of main victims with its bearish bets at the highest since late May. The currency came under further pressure from falling oil prices.

The Philippine peso also reported the largest pessimistic positions in near four months on equity outflows. Sentiment on local assets soured as Philippine President Rodrigo Duterte was in the spotlight last week over a televised tirade against the United States and President Barack Obama.

Bullish bets on South Korea's won evaporated on increasing geopolitical tensions sparked by North Korea's nuclear test last week.

The Indian rupee bucked the regional trend with its bullish bets moving up. The country is likely to post its first current account surplus in nine years in the latest quarter.

Most poll participants provided their estimates before an Indian television reported that India's commerce ministry will propose a devaluation of the rupee to support exports, but the finance ministry denied the report.

Indonesia's rupiah also posted larger long positions on speculations that the central bank may cut interest rates.

Last week, Bank Indonesia Governor Agus Martowardojo said the central bank may ease policy this month or next either by cutting its benchmark interest rate or commercial banks' reserve requirement ratio, or through some other means.

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.

REUTERS