Investors turn long on India's rupee after 4 months; rupiah short bets cut

Investors switched to long positions on India's rupee for the first time since September, on hopes that the economy may be able to withstand the worst of the Omicron surge and bets that U.S. rate hikes are largely priced in, a Reuters poll found.

Broadly, investors stayed bearish on most Asian emerging currencies, the poll of 12 respondents showed, as the spread of Omicron threatens to slow the region's recovery, although, so far, emerging equities have remained fairly resilient.

High inflation in the United States may also prompt the Federal Reserve to hasten its interest rate hikes, with the central bank signalling in December that they could raise rates three times this year.

"Although these are headwinds, we do not think the market is overly complacent as risks are likely to be moderate (Omicron) and/or have been largely priced already (Federal Reserve)," analysts at Barclays said earlier this week.

So far in India, which is in the midst of a third wave of the COVID-19 pandemic, states have imposed some restrictions on daily life, but have not enforced economically damaging lockdowns seen in previous waves.

Asia's third-largest economy grew at the fastest pace for any major economy between July and September, as businesses reopened and government spending strengthened.

Barclays added that it does not see tighter Fed policy, led by U.S. growth outperformance, driving sustained dollar strength, and remains long on the rupee. The rupee has appreciated close to 3per cent since mid-December.

Even in Indonesia, whose bond markets are susceptible to foreign flows, the rupiah has not been too volatile.

Traders trimmed their short bets on the rupiah as local demand recovers and vaccination rates rise.

Standard Chartered said in a note that given the high vaccination rates and data suggesting the Omicron variant is less severe than other variants, it may allow for the Indonesian economy to open further.

It expects the rupiah to strengthen to 14,000 by the end of the first quarter. The currency was last trading around 14,305 on Thursday.

Elsewhere, investors lowered short bets on the Singapore dollar and Malaysian ringgit, while raising bets on the Philippine peso and Thai baht.

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).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE CNY KRW SGD IDR TWD INR MYR PHP THB

13-Jan-22 -0.73 0.97 0.22 0.20 -0.15 -0.29 0.28 0.71 0.61

16-Dec-21 -1.07 0.53 0.67 0.54 0.09 1.07 0.84 0.2 0.36

02-Dec-21 -0.88 1.06 0.58 0.15 0 0.47 0.28 0.26 0.71

18-Nov-21 -0.87 0.48 0.07 -0.72 -0.15 0.08 -0.04 0.24 0.12

04-Nov-21 -0.51 0.63 -0.09 -0.41 0.1 0.54 -0.07 0.27 0.66

21-Oct-21 -0.55 0.91 -0.27 -1.12 0.3 0.7 0.1 0.44 1.1

07-Oct-21 0.27 1.35 0.2 -0.29 0.28 0.1 0.3 0.84 1.2

23-Sep-21 0.25 0.96 -0.15 -0.5 -0.2 -0.45 0.25 0.56 0.75

09-Sep-21 -0.09 0.33 -0.36 -0.44 -0.69 -0.88 0.23 0.4 0.12

26-Aug-21 0.43 0.87 0.47 0.18 0.33 -0.08 1.19 0.78 1.35