Bearish sentiment surrounding Asian currencies has intensified, with short positions on the South Korean won and the Indian rupee reaching their highest levels in two years. This increase in bearish bets comes amid rising fears that potential U.S. tariffs could negatively impact emerging market assets, particularly currencies sensitive to trade relations.
Short positions on the South Korean won surged to their highest level since mid-October 2022, while those on the Indian rupee climbed to their steepest point since early November 2022, according to a poll of 11 market participants conducted on Thursday.
Concerns about U.S. President-elect Donald Trump’s threatened tariffs on China, Southeast Asia’s largest trading partner, are contributing to the growing uncertainty. Market watchers fear that these tariffs could lead to inflationary pressures, prompting a more cautious Federal Reserve and potentially slowing U.S. rate cuts. This, in turn, could have a ripple effect on emerging market currencies, further depressing their appeal.
In contrast, bearish bets on the Chinese yuan have slightly decreased, as market expectations for stimulus support grew following a meeting of top Communist Party officials. These officials pledged to stabilize China’s property and stock markets, raising hopes of potential economic measures, including a possible yuan devaluation, to mitigate the impact of anticipated U.S. tariffs.
Christopher Wong, a currency strategist at OCBC, noted, “The RMB will still be hit if Trump imposes tariffs. The uncertainty lies in the timing, magnitude, and scope. But for now, the daily CNY fixing pattern (below 7.20) suggests that policymakers are likely to maintain their approach and use the fix to manage yuan expectations until any tariff action occurs.”
In South Korea, the won saw a near 2% drop last week, partly due to political turmoil caused by President Yoon Suk Yeol’s brief martial law declaration and subsequent reversal. This, combined with fears of U.S. tariffs and an unexpected rate cut by the Bank of Korea, has led to growing concerns over the country’s trade outlook. A 14-month slump in exports has further fueled these worries, as weak U.S. demand exacerbates trade tensions.
Wei Liang Chang, a currency and credit strategist at DBS, said, “USD/KRW could continue to hover around 1,420 for the first half of 2025 amid tariff risks and political uncertainty. However, we expect a gradual recovery in the second half, as political noise fades and Korea’s growth picks up with an upturn in the semiconductor industry and lower rates.”
Meanwhile, the Indian rupee has hit record lows three times since last week, weighed down by slowing economic growth, persistent foreign investment outflows, and the broader volatility in regional currencies, including the weakening Chinese yuan. Chang added, “Indian policymakers may continue to smooth INR volatility, and we expect USD/INR to gradually inch higher, especially with expectations of a potential rate cut by the Reserve Bank of India in February.”
On a more positive note, bearish bets on the Thai baht eased following data showing a 28% year-to-date increase in foreign tourist arrivals, alongside projections of 4% growth in exports. These figures suggest a more stable outlook for Southeast Asia’s second-largest economy.
Additionally, bearish positions have also softened for other currencies in the region, including the Indonesian rupiah, Malaysian ringgit, and Philippine peso.
The poll, which focuses on market positions for 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), gauges sentiment through estimates of net long or short positions. A score of plus 3 indicates the market is significantly long on U.S. dollars, and the figures include positions held through non-deliverable forwards (NDFs).
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