Bears ease grip on most Asian currencies as trade worries ebb

Investors rolled back short positions on most Asian currencies over the past two weeks, as risk appetite picked up after the United States and China agreed to restart trade talks.

News that the world’s two largest economies would return to the negotiation table in early October was cheered by markets, with bearish bets on the Chinese yuan CNY=CFXS being sharply unwound.

Reduced prospects of a no-deal Brexit and a possible breakthrough in Hong Kong’s political standoff also helped investors raise views on Asian units and reduce safe-haven holdings.

The poll was closed on Wednesday, before a surprise announcement from U.S. President Donald Trump delaying scheduled tariff hikes on billions of dollars worth of Chinese goods.

Short positions in currencies of export-focused economies were also shaved, with sentiment toward the Korean won KRW=KFTC, the Taiwan dollar TWD=TP and the Singapore dollar SGD= improving the most, the poll of 15 respondents showed.

This spot of relief comes as worries over cooling demand from the region’s largest trading partner, China, has begun to ease.

Meanwhile, bulls seized hold of the Indonesian rupiah INR=ID for the first time since early August, the poll found.

A series of rate hikes last year has led to high real interest rates in the country, which helped to keep inflation in check and smoothed over currency volatility, attracting a large number of carry plays.

“The central bank has done a good job in terms of stabilizing the rupiah,” said Sim Moh Siong, a FX strategist at Bank of Singapore.

“There is some silver lining in terms of the U.S.-China trade talks, and given that inflation is low and the Fed is cutting rates, the rupiah is now reaping the dividend from the central bank’s efforts to stabilize it in the past.”

Bullish positions on the Thai baht THB=TH retreated to their lowest since early June amid rising bets of a rate cut as early as September, after inflation missed expectations in August and stayed below the central bank’s target for a third straight month.

Short positions on the Indian rupee INR=IN largely remained unchanged, the poll found, after recent data showed sluggish economic growth between April and June and the manufacturing sector sputtered in August.

The data prompted a selloff in the equity market and brought expectations of a rate cut in October back to the table.

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.

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