Asian FX: Oil shock and US yields pressure importers – MUFG

MUFG’s Michael Wan highlights that Asian Emerging Markets (EM) currencies have weakened as higher US real yields, a stronger Dollar and elevated Oil prices weigh on sentiment. Oil-importing currencies such as Indian Rupee (INR) and Philippine Peso (PHP) are singled out as most vulnerable, alongside Indonesian Rupiah (IDR) given its sensitivity to United States (US) yields and domestic headwinds. Authorities in India and Sri Lanka have already tightened import rules to protect foreign exchange reserves.

Oil importers suffer under Dollar strength

"Asian EM currencies bore the brunt of the dollar's strength, higher US real yields, and elevated energy prices."

"This was particularly true for the oil importers such as INR and PHP, which now face a double whammy of higher oil prices and rising US yields, coupled with currencies with domestic headwinds and sensitive to US yields such as IDR."

"The MSCI EM Currency Index closed the week of 15 May 0.9% lower, its worst weekly performance since early March."

"Compounding the pressure, the 60-day correlation between Brent crude and the Bloomberg Dollar Spot Index has reportedly reached 0.55 — the highest since the index's inception in 2005 — meaning Asian oil importers face a simultaneous squeeze from a stronger dollar and a higher commodity import bill."

"India moved swiftly over the weekend to defend the rupee, tightening silver import rules and requiring prior government approval for silver bar imports, while Sri Lanka imposed a 50% import duty surcharge on private vehicles for three months, both citing foreign exchange reserve pressures."

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