Investors turn in favour of rupee, raise bullish bets on yuan, won

Reuters: Investors likely turned in favour of the Rupee over the last fortnight, while adding to their already bullish bets on the Chinese Yuan and Korean won, a Reuters poll showed.

Currency speculators built up long positions in favour of the Rupee ahead of the national budget on 28 February, according to the poll of 12 analysts.

The Rupee has risen more than 2% against the US Dollar so far this year, making it the second best performer among emerging Asian currencies behind the Thai baht.

A poll taken just two weeks ago showed bearish positions on the Rupee had been built up for the first time in four months, after a preliminary estimate showed Asia’s third-largest economy grew just 5% in the current fiscal year to March.

But since then investors have grown increasingly hopeful that the Indian Government would announce measures to attract more foreign fund flows in the country to shore up faltering growth. The latest survey showed upbeat views for most currencies in the region.

While long positions were increased in the Chinese Yuan, the South Korean won and the Thai Baht, bullish bets were scaled back on the Philippine Peso.

The Yuan gained as traders said Beijing appeared to be holding the currency largely stable before the annual Chinese Parliamentary session in the first half of March. In the session, China will usher in a new generation of Government officials.

Bets on the won rose as weakness in the Yen paused, on capital inflows and demand from exporters for settlements.

But its upside was capped on growing caution over possible intervention by the foreign exchange authorities to protect export competitiveness as Japan kept seeking aggressive expansionary steps, weighing on the Yen.

However, short positions on the Indonesian Rupiah increased. The Rupiah remained under pressure from continuous Dollar demand from local Corporates, but it has found some support from capital inflows, which helped power Jakarta stocks to a record high.

The US Dollar has so far weathered the threat from sharp fiscal spending cuts, known as ‘sequestration’, and bets turned in favour of the greenback for the first time since December in the week to 19 February, data from the Commodity Futures Trading Commission released last week showed.

The automatic spending cuts of US$ 85 billion look increasingly likely to start as planned on Friday, with US President Barack Obama and Republican congressional leader nowhere near a deal to avoid them.

The Federal Reserve Chairman Ben Bernanke this week alleviated some worries about the possibility of an early end of the Fed’s stimulus, supporting emerging Asian currencies.

Bernanke, facing a congressional panel for a second day on Wednesday, also downplayed signs of internal divisions, saying the policy of quantitative easing has the support of a ‘significant majority’ of top central bank officials.

The Reuters survey is focused on what analysts believe are the current market positions in nine Asian emerging market currencies: 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 three to plus three. A score of plus three indicates the market is significantly long US Dollars. The figures included positions held through non-deliverable forwards.