Asian Currencies Weaken as Oil Surge, Dollar Strength Deepen Bearish Bets

Bearish sentiment toward most emerging Asian currencies intensified this week, driven by escalating Middle East tensions and rising U.S. Treasury yields, according to a Reuters poll conducted before the Federal Reserve's interest rate decision Wednesday.

Attacks on Saudi Arabia's East-West pipeline pushed global oil prices above $100 a barrel. The surge in crude prices weighs on energy-importing economies across Asia by raising import bills, worsening trade balances and pressuring local currencies.

The Philippine peso remained the most shorted currency in the survey, with bearish bets climbing to their highest level in over four months. The currency has been among the region's weakest performers this year, hitting record lows three times in September.

Analysts at MUFG said the risk-reward for taking long dollar positions against the peso had become less attractive, citing an undervalued currency and improving domestic economic fundamentals.

Investors also increased short positions in the Thai baht, reaching the most bearish level in approximately two months. Rising oil import costs continue to affect Thailand's terms of trade, offsetting gains from stronger electronics exports.

Short positions on the Indian rupee and Malaysian ringgit expanded to their largest levels since July. MUFG analysts noted that Malaysia's electronics trade surplus has been sufficient to counter the higher energy import bill.

Despite higher oil prices and fiscal concerns linked to fuel subsidies, MUFG analysts see potential for ringgit strength, providing a counter-perspective to the general bearish trend.

In Indonesia, President Prabowo Subianto replaced the finance minister with the deputy finance minister this week. Analysts said the move should reassure investors after months of concerns over policy credibility and governance that had prompted markets to reassess Indonesia's investment appeal.

Sentiment toward the Indonesian rupiah improved, with investors reducing short positions, even though the currency has lost 6 percent so far this year.

Analysts at TD Securities said the rupiah should recover its year-to-date losses against low-yielding emerging Asia peers based on stabilization of domestic risks within Indonesia.

Elsewhere in the region, investors pared back bullish positions on the Taiwan dollar, Singapore dollar and the Korean won.

Analysts at MUFG said the risk-reward for taking long dollar positions against the peso had become less attractive, citing an undervalued currency and improving domestic economic fundamentals.

Despite higher oil prices and fiscal concerns linked to fuel subsidies, MUFG analysts see potential for ringgit strength, providing a counter-perspective to the general bearish trend.

Sentiment toward the Indonesian rupiah improved, with investors reducing short positions, even though the currency has lost 6 percent so far this year.

Analysts at TD Securities said the rupiah should recover its year-to-date losses against low-yielding emerging Asia peers based on stabilization of domestic risks within Indonesia.

Elsewhere in the region, investors pared back bullish positions on the Taiwan dollar, Singapore dollar and the Korean won.