MUFG senior currency analyst Michael Wan highlights that higher oil prices and potential energy shortages are increasingly weighing on Asian currencies. The bank notes that energy-sensitive currencies such as INR, KRW and PHP have already weakened, and expects the next phase to be driven more by growth concerns and risk aversion if the Iran conflict drags on, with CNY expected to be relatively more resilient.

The energy shock shifts the emphasis to growth

“Overall, throughout the crisis, we have advised our clients and readers to adopt a cautious stance and find opportunities to hedge if market levels permit, particularly in the case of energy-sensitive Asian currencies such as INR, KRW and PHP.”

“Going forward, many of these currencies in Asia have already weakened after incorporating larger risk premiums into them, so the risk may now be a little more two-way.”

“We believe the next phase for Asian currencies could be a shift towards growth concerns and greater risk aversion in markets if the Iran conflict continues.”

“This will likely mean that emerging market currencies sensitive to economic growth and the current account deficit are likely to show a greater degree of underperformance in the future, including currencies such as INR, PHP, IDR and KRW.”

“We continue to believe that CNY will show greater relative resilience in our region.”

(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)