Investors have reduced their bearish positions on most Asian currencies, following signs that U.S. President Donald Trump’s trade policies may involve negotiations rather than the immediate imposition of significant tariffs. According to a Reuters poll conducted on Thursday, short bets on the Chinese yuan, Taiwanese dollar, and Thai baht were lower compared to two weeks ago, reflecting a shift in market sentiment.
The poll, which surveyed 11 respondents, also revealed that short positions on the South Korean won—one of the best-performing Asian currencies this month—had decreased. Investors had initially expected tariffs to be among the first executive actions Trump would sign into law on his first day in office. However, as his administration suggested a more measured approach to trade, this news softened the U.S. dollar and boosted investor sentiment towards Asian currencies.
Trump’s Trade Stance Eases Market Fears
Trump’s statements regarding tariffs have been key to shaping market expectations. While he confirmed plans to impose a 10% tariff on Chinese imports and a 25% levy on goods from Mexico and Canada starting February 1, his administration’s more cautious tone around the issue has alleviated concerns of immediate and aggressive trade actions.
Poon Panichpibool, a market strategist at Krung Thai Bank, noted that as long as investors remain confident that the tariff hikes will be gradual and less severe than previously anticipated, Asian currencies could receive support. “A somewhat weaker U.S. dollar and muted movement in U.S. Treasury yields could help stabilize regional currencies,” he said.
Singapore Dollar and Indian Rupee Show Diverging Trends
In contrast to the overall reduction in bearish positions on most Asian currencies, the Indian rupee saw a rise in short positions, reaching its highest level since mid-July 2022. The rupee has lost around 3% since Trump’s election victory, making it the second-worst performing currency in the region this month. Analysts at Barclays pointed to factors such as the rupee’s overvaluation, a growing forward book at the Reserve Bank of India (RBI), and increasing broad U.S. dollar strength as key reasons behind the bearish sentiment. Foreign outflows from India’s equity market and declining forex reserves also contributed to the rupee’s ongoing weakness.
On the other hand, short bets on the Singapore dollar eased, driven by lower inflation and stronger growth prospects, which have created room for the Monetary Authority of Singapore to consider easing its policy settings in its upcoming review. However, analysts remain divided on whether the central bank will act immediately or wait to assess the full impact of Trump’s policies.
Rupiah Faces Rising Bearish Bets After BI Rate Cut
The Indonesian rupiah also saw an increase in bearish positions, reaching its highest level since November 2022. Last week, the Bank of Indonesia (BI) surprised markets with an unexpected interest rate cut aimed at boosting economic growth. Barclays analysts pointed out that the rupiah’s weakening has been linked to BI’s shift toward a more dovish stance, which they believe could open the door for further upside in USD/IDR.
The poll surveyed net long or short positions on nine Asian emerging-market currencies, including the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwanese dollar, Indian rupee, Philippine peso, Malaysian ringgit, and Thai baht. The survey uses a scale from minus 3 to plus 3, with a plus 3 score indicating a significantly long U.S. dollar market position.
Conclusion: Asian Currencies Stabilize Amid U.S. Policy Shifts
The latest data points to a general stabilization in sentiment toward Asian currencies, thanks to more tempered U.S. trade policy announcements. While concerns about certain currencies like the Indian rupee and Indonesian rupiah remain, the broader outlook for the region has improved as investors scale back their bearish bets. As Trump’s trade policies take shape, market reactions will likely continue to evolve, with the U.S. dollar’s strength remaining a key factor in shaping regional currency trends.
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