High oil prices weigh on Asian currencies as bearish bets build on rupiah, baht and rupee

Most emerging Asian currencies have remained under pressure, with a Reuters market poll released on Oct. 1 showing investors maintaining bearish views on many of them as international oil prices stay elevated, the US dollar becomes more attractive and US Treasury yields rise.

The poll of 10 market participants found that short positions on the Indonesian rupiah had climbed to their highest level since late July. Bearish sentiment toward the Philippine peso, Thai baht and Indian rupee also remained relatively high.

Analysts said persistently high oil prices could widen the external deficits of energy-importing countries while adding to inflationary pressure. For Asian economies that rely heavily on energy imports, higher energy costs would further weaken current-account buffers and could reduce the appeal of local assets to international investors.

At the same time, rising US Treasury yields have made the dollar more attractive relative to other Asian currencies. Reuters reported that the yield on 30-year US Treasuries had recently risen to a 22-year high, as markets continued to focus on inflationary pressure and whether the US Federal Reserve may need to pursue tighter monetary policy.

Jeff Ng, head of Asian macro strategy at SMBC, said higher oil prices could erode the current-account buffers of net oil importers in Asia. A widening yield gap between the dollar and Asian currencies was also making some Asian currencies less attractive to investors, he said. Ng identified the Indian rupee, Philippine peso and Thai baht as among the most vulnerable currencies at present.

Short positions in both the rupiah and baht rose to their highest levels since late July. Both currencies have also been among the weaker performers in Asia this year. With the Bank of Thailand's policy rate at 1%, market participants said the baht was less able to withstand pressure from higher US yields.

The Indian rupee has likewise come under dual pressure from rising oil prices and higher global bond yields. The Reuters poll showed that bearish sentiment toward the rupee had reached its highest level since early June. However, continued intervention by the Reserve Bank of India in the foreign exchange market has limited the currency's decline to some extent.

By contrast, the South Korean won has received stronger support. Market participants said strong exports of artificial intelligence (AI)-related chips were helping South Korea maintain a current-account surplus and boosting investor confidence in the won. The currency has attracted bullish views in five consecutive Reuters polls.

The won has risen more than 5% against the US dollar this year, joining the Singapore dollar and Chinese yuan as one of the few emerging Asian currencies still in positive territory.

The Malaysian ringgit has also shown relative resilience. As Malaysia is a net energy exporter, higher international oil and gas prices could increase its energy export revenues, leaving the ringgit under less pressure than the currencies of neighbouring energy importers.

Bullish positions on the Chinese yuan have also continued, extending a positive trend that has lasted a year. Long positions in the Singapore dollar have remained broadly at levels seen since early August.

Reuters' Asian currency positioning survey covers nine emerging Asian currencies: the yuan, won, Singapore dollar, rupiah, New Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht. The survey mainly reflects the views of analysts and fund managers on current market positioning in each currency.

For Taiwan, international oil prices and the dollar's direction remain important external factors for the New Taiwan dollar. If oil prices stay high while US interest rates and the dollar remain strong, currencies in Asian energy-importing economies could continue to face pressure. Conversely, if energy prices fall or the dollar weakens, pressure on Asian currencies could ease.