Investors cut long bets sharply on the Chinese yuan while turning short on most other Asian currencies, a Reuters poll showed, as US economic growth and rising Treasury yields bolstered the dollar.
Expectation that the US economic recovery will far outpace the rest of the world has seen Treasury yields on the rise and is giving the dollar an added boost, sapping appetite for emerging market currencies and bonds that traditionally yield more though are considered riskier.
Positions on the yuan have remained long since July last year as the world's second-largest economy emerged from the crutches of the pandemic and was the only major economy to see growth in 2020. The view on the yuan now is on the verge of turning bearish, a fortnightly poll of 13 respondents showed.
Bets on the South Korean won, Singapore dollar and Malaysian ringgit all turned bearish for the first time since early last summer.
For the Indonesian rupiah, which backs some of the highest-yielding debt in emerging markets, investors turned short for the first time since late October, and were the most bearish since earlier that same month. Since the last poll two weeks ago, the rupiah has lost about 2.2%.
Positioning data shows hedge funds paring net short-dollar positions to $29 billion last week.
Concerns also remain that the $1.9 trillion US coronavirus relief package, set to be signed by US President Joe Biden this week, may cause inflation to rise.
OCBC Bank's 'pressure gauge', which indexes various factors that influence exchange rates, for Asian currencies is moving into the depreciation zone.
"The move of the FX pressure gauge into the depreciation zone leaves us concerned about the near-term prospects of Asian currencies," Terence Wu, an FX Strategist at OCBC, wrote in a note.
He said they cannot rule out the pressure gauge deepening in the depreciation zone, which could see portfolio outflows extend for equities in North Asia and Indonesian bonds.
In Taiwan, investors remained long on the local dollar though bets were scaled back.
The central bank governor said the United States may label the trade-dependent island a currency manipulator. On Wednesday, data showed it spent a net $39.1 billion last year to intervene in the foreign exchange market.
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 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 US dollars.
The figures include positions held through non-deliverable forwards (NDFs).