Climbing infection rates, a stalled coronavirus relief bill, weak jobs data and escalating tensions with China have driven investors out of the traditional security of the dollar, with the greenback posting its biggest monthly drop in a decade in July.
Markets should brace for further weakness in the dollar as liquidity is ample due to the Federal Reserve's measures, said Wei-Liang Chang, macro strategist at DBS Bank, adding that the currency would stay on the back foot until the Presidential elections in November.
Singapore's dollar and the South Korean won were the biggest beneficiaries of the U.S. dollar pullback, the poll of 17 respondents showed. Bullish bets on the Singapore dollar touched an eight-month peak, while those on the won more than doubled to their highest since December 2018.
"The outlook for global trade seems to be improving from highly depressed levels, evident from the sharp rebound in purchasing managers index (PMI) figures in China and across the region," DBS analysts Wei-Liang Chang added.
Disruptions from the pandemic are slowly winding down and most economies have reopened to a significant degree, fuelling expectations that global trade will pick up on the back of strong fiscal and monetary stimulus, he added.
Earlier this month, data showed South Korea's exports fell at their slowest pace in four months in July and beat expectations.
Singapore's retail sales climbed sequentially in July, suggesting a pick-up in consumer spending after the easing of restrictions.
Meanwhile, investors firmly held onto their long positions on the Chinese yuan since turning bullish in July, as largely positive factory data and an assurance from the central bank that economic recovery was underway kept spirits high.
Investors went long on Thailand's baht, reversing positions from two weeks ago as the central bank's policy easing cycle seemed to have come to a halt after three cuts this year.
Short bets on Indonesia's rupiah were trimmed despite a spike in coronavirus cases and market expectations of another interest rate cut after a slew of disappointing economic data.
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.
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 U.S. dollars. The figures include positions held through non-deliverable forwards (NDFs). - Reuters
Did you find this article insightful?
100% readers found this article insightful