Asia FX outlook amid oil shock (with Yvonne Man, David Ingles)

Oil shock sustains USD strength, pressuring Asian FX. BSP likely to hike, but peso relief hinges on oil. THB vulnerable via tourism spillovers. JPY intervention only temporary; express yen weakness vs. basket. FOMC hawkish repricing supports dollar; de-escalation trade = sell USD. Favor RMB and SGD for relative resilience.

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Asia FX outlook amid oil shock (with Yvonne Man, David Ingles)

dxy

As long as oil prices stay high, the dollar might not be able to sell off that easily.

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wti

Her entire analysis of FX vulnerability is predicated on oil prices remaining high, implying an upward view on oil.

Do you think the BSP should consider a 50 basis point hike now and continue to be active in the markets?

David Ingles
Joey Chu

Philippine inflation is rising a lot above expectations, with second-round effects already happening. BSP will be very concerned and more rate hikes are likely on the cards. Whether it helps the peso depends on oil prices and risk sentiment.

A lot of this is due to the current account deficit, which takes time to correct.
Beyond the Philippines, which Asian currencies are most exposed and vulnerable to oil prices?

Yvonne Man
Joey Chu

Thai baht is the second worst performing currency for good reason, but inflation is starting from a lower point. However, Thailand's economy is very exposed to Middle East economies, so there will be spillover effects like on tourism.
With oil at $100 for three months, will this show up in currency markets in another way?

David Ingles
Joey Chu

If oil prices stay high for longer, even countries with inventory stockpiles will run into issues. Resilience is relative within Asia, not necessarily against the dollar.
How much intervention can Japan do and can they keep dollar-yen below 160?

Yvonne Man
Joey Chu

Japan has the means, but the issue is efficacy and timing when oil prices are still rising. They want to clean up speculative positions first. We might need to wait for another build-up before another round of intervention.
How do you express yen weakness now that there's a strong line in the sand on dollar-yen?

David Ingles
Joey Chu

The yen is weak for many reasons: risk appetite, yield differential, oil imports. There are other ways to express this than just against the dollar, like against a basket of currencies.
Is the Fed's higher-for-longer stance going to provide structural support for the dollar?

Yvonne Man
Joey Chu

Yes, the shift is happening in the FOMC and data is supportive of a strong dollar. As long as oil prices stay high, the dollar might not sell off easily. A de-escalation trade would be a sell dollar trade.

Previously, the idea of a weaker dollar from the Trump administration was holding the dollar back, but that has changed.
If you had to buy a bond and a currency and wake up this time next year, what is the trade?

David Ingles
Joey Chu

We like RMB on a relative value basis; it is likely to appreciate against other Asian currencies. We also like the Singapore dollar. Both are low-yielding but offer safety and resilience.

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