Analysis: If oil prices remain above $80, most Asian currencies face depreciation pressure | Lianhe Zaobao

The Middle East conflict has pushed up international oil prices. Analysts point out that if oil prices remain above $80 per barrel or even rise further, most Asian currencies will face depreciation pressure, with the South Korean won and Indian rupee expected to be the most vulnerable, while the Chinese yuan and Malaysian ringgit are relatively resilient. Although the Singapore dollar has defensive attributes, it still struggles to completely escape the drag of global economic slowdown. On Monday (March 2), the US dollar was above 1.26 against the Singapore dollar, and the Singapore dollar was quoted at 3.0767 against the Malaysian ringgit. Mitsubishi UFJ Financial Group (MUFG Bank) senior currency analyst Wen Zhenquan noted in a report released on Monday that Brent crude oil rose to about $80 per barrel during the Asian morning session, leading to a simultaneous strengthening of the US dollar. If the conflict continues and results in persistently high oil prices, the current accounts of most net oil-importing economies in Asia will come under pressure, and currency trends are likely to be weak. Wen Zhenquan pointed out that most Asian economies are net oil importers, and for every $10 increase in oil prices, the current account deficit may widen by about 0.2% to 0.9% of GDP. In this scenario, the South Korean won, Indian rupee, and Philippine peso face greater pressure. In contrast, the offshore Chinese yuan and Malaysian ringgit are expected to perform relatively robustly in the region. He explained that both South Korea and India are highly dependent on oil imports, and the won itself is a "high beta" currency, which tends to fluctuate more dramatically when risk sentiment weakens. Further Reading Global oil market in turmoil, oil prices soared by 13% Middle East situation triggers fluctuations in cryptocurrency market, Bitcoin price rebounds over 2% From an inflation perspective, for every $10 increase in oil prices, the overall inflation rate in Asia may rise by about 0.1 to 0.9 percentage points, with Thailand, Vietnam, the Philippines, and South Korea being the most sensitive to oil price changes. If oil prices approach $90 per barrel, inflation in the Philippines and Vietnam may rise to near the upper limit of the central bank's target range However, Wen Zhenquan believes that Asian central banks may not immediately raise interest rates due to the impact of oil prices, but the rate cuts in the Philippines and Indonesia may be delayed as a result, and the probability of rate cuts in India and South Korea will also further decrease. On the other hand, Saktiandi Supaat, head of foreign exchange research at Malayan Banking Berhad, pointed out that the key variable in the market currently is whether the conflict evolves into a long-term war. If the situation remains tense, risk aversion will support the US dollar and put pressure on emerging Asian currencies; if the conflict quickly de-escalates, the dollar may retreat after a rebound, and Asian currencies are expected to experience a technical rebound. According to Malayan Banking Berhad's weekly report, the US dollar index is supported under geopolitical tensions. If oil prices continue to rise and impact the global economy, the dual role of the dollar as a safe-haven currency and a net energy-exporting currency will be further strengthened. Saktiandi pointed out that in an environment of declining risk appetite, net oil-importing currencies such as the Philippine peso, South Korean won, and Indonesian rupiah are relatively weak. Although the Singapore dollar has defensive attributes, it is still difficult to completely escape the drag of global economic slowdown. The Malaysian ringgit may show a seesaw trend under the dual influence of risk sentiment and rising oil prices