Asia FX: Oil rebound keeps importers vulnerable – OCBC

OCBC’s Sim Moh Siong and Christopher Wong report that Philippine Peso (PHP), Indian Rupee (INR), Indonesian Rupiah (IDR) and Thai Baht (THB) weakened as Oil’s rebound renewed pressure on net importers. They stress that relief from lower Oil prices is fragile and that renewed strength can worsen terms of trade and inflation, leaving Asian currencies exposed even if the broader US Dollar (USD) backdrop turns more supportive, with US CPI still in focus.

Oil-sensitive currencies under strain

"Asian FX traded on a softer footing, with PHP leading declines while INR, IDR and THB also weakened as the rebound in oil prices renewed pressure on the region’s net oil importers."

"Crude prices have recovered sharply over the past two sessions as earlier optimism over a swift reopening of the Strait of Hormuz faded, with Iran attaching conditions to any agreement and uncertainty over the timing of a deal persisting."

"The recent slippage in Asian FX is a reminder that the relief from lower oil prices remains fragile. For net oil importers such as India, Indonesia, the Philippines and Thailand, renewed oil strength can worsen terms of trade, add to imported inflation and weigh on external balances, leaving their currencies more exposed when crude rebounds."

"Recent positioning had improved precisely as cheaper oil eased some of these concerns."

"Near term, focus remains on US CPI for its implications for Fed expectations, US yields and the USD. But the renewed swings in oil suggest that oil-sensitive Asian currencies are not yet out of the woods, even if the broader USD backdrop turns more supportive."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)