Asian currencies suddenly rally together! Won turns bullish for the first time in over 10 months, yuan bulls rise to strongest in six weeks

According to the latest survey released by Reuters on Thursday, market sentiment toward Asian currencies has significantly improved as international oil prices have declined. For the first time in over 10 months, investors have turned bullish on the Korean won, while also reducing short bets on most emerging Asian currencies.

This biweekly survey covered 10 analysts and fund managers. The results show that the market has become less bearish on the Indian rupee, Philippine peso, and Thai baht, and is slightly bullish on the Singapore dollar for the first time in two months.

Korean won rises to over 10-month high

In recent weeks, the Korean won has appreciated about 3%. As of Thursday, USD/KRW once fell to around 1414.5, reaching a more than 10-month high for the won.

The recent strength in the won is primarily supported by FX intervention, dollar settlements by Korean companies, and capital repatriation following SK Hynix's issuance of American Depositary Receipts in the U.S.

OCBC Bank foreign exchange strategist Christopher Wong said the market's shift to bullishness on the won reflects increased dollar supply from Korean exporters, capital inflows, as well as Korean authorities’ willingness to curb excessive depreciation of the won.

He added that the recent appreciation of the yen has also provided support to the won. However, the current rebound in the won is largely driven by capital flows and market position adjustment, and its sustainability remains to be seen.

Bullish positions on the renminbi climb to six-week high

The survey shows that bullish sentiment toward the renminbi has risen to its highest level in six weeks. Positioning in the Singapore dollar has also turned net long for the first time in two months.

Earlier this week, international crude oil prices hit a one-month low, easing input inflation pressure faced by energy-importing countries. For Asian economies heavily reliant on energy imports, lower oil prices help improve terms of trade and ease pressure on their local currencies.

Kasikornbank market strategist Poon Panichpibool noted that improved prospects for a U.S.-Iran ceasefire could provide additional support for emerging market currencies. Energy importers will benefit from both lower energy prices and a weaker dollar.

Indian rupee shorts at one-year low

Investors continued to cut their short positions on the Indian rupee, with shorts falling to their lowest level in a year.

Most survey responses were collected before the Reserve Bank of India announced its rate decision on Wednesday. The Reserve Bank of India left the key repo rate unchanged at 5.25% on the day, opting to monitor the impact of oil price changes on domestic inflation.

India, as one of the world’s major crude oil importers, benefits from lower energy prices that reduce import costs and current account pressures, thus providing some support to the rupee.

Market participants also continued to reduce their bearishness on the Indonesian rupiah. Previously, shorts on the rupiah hit a record high in mid-June according to the survey’s history.

Pressure eases on Thai baht and Philippine peso

Investors also cut their short positions on the Malaysian ringgit and Taiwan dollar. Baht shorts fell to their lowest since late May, while shorts on the Philippine peso dropped to their weakest since early March.

Inflation data released this week for Thailand and the Philippines shows that price pressures moderated in July. Analysts expect this trend may continue as U.S.-Iran tensions ease and oil prices decline.

Lower energy costs not only help ease inflationary pressures but may also give Asian central banks more flexibility with monetary policy, reducing the need to maintain high rates to stabilize exchange rates.

Sentiment toward Asian currencies partially recovers

The Reuters Asian currency positioning survey covers the renminbi, Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit, and Thai baht.

The survey measures net long or net short positions on a scale of -3 to +3, with +3 indicating the market is heavily long on the U.S. dollar and short on the relevant Asian currencies. Data also includes non-deliverable forward positions.

Overall, falling oil prices, a weaker dollar, and easing U.S.-Iran tensions are driving improved risk sentiment toward Asian currencies. However, the recent rallies in currencies like the won are mainly driven by capital flows and position adjustments; should oil prices rebound or the dollar strengthen, Asian currencies could face renewed pressures.