Asian FX: Oil shock and Fed stance pressure – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong highlight that most Asian FX traded softer as Brent’s rise toward USD120/bbl, inflation risks and hawkish Fed repricing weighed on sentiment. The impact has been uneven, with South Korean Won (KRW) and Oil-sensitive Philippine Peso (PHP) and Thai Baht (THB) under more pressure, while Renminbi (RMB) has been relatively resilient. Prolonged US-Iran tensions and higher Oil could further dampen Asian FX momentum.

Uneven pressure tied to Oil and geopolitics

"Most Asian FX traded softer overnight as rise in brent to near USD120/bbl spooked sentiments. Inflation risks, hawkish repricing in Fed and fears of demand destruction are some of the factors that weighed on Asian FX. That said, the hit was uneven."

"High-beta/ growth proxy, KRW came under renewed pressure while oil sensitive PHP, THB continued to trade lower. In contrast, RMB was more resilient in relative terms (even as it traded softer vs USD)."

"The focus remains on oil prices/ supply. And we reiterate the longer the standoff between US and Iran, the tighter the oil market, and oil prices will have to be repriced higher. Ultimately this can weigh on Asian FX momentum."

"Recent geopolitical development saw Trump preparing to extend naval blockade on Hormuz strait until a nuclear deal is reached while CNN earlier reported that Iran will submit revised plan soon."

"As much as tensions are heightened now, geopolitical developments remain fluid. Any signs of de-escalation, alongside oil prices easing should see depreciation pressure on Asian FX ease."

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