MUFG’s Senior Currency Analyst Michael Wan highlights that higher Oil prices and potential energy shortages are increasingly weighing on Asian FX. The bank notes that energy-sensitive currencies like INR, KRW and PHP have already weakened, and sees the next phase driven more by growth concerns and risk aversion if the Iran conflict drags on, with CNY expected to be relatively more resilient.

Energy shock shifts focus to growth

"Overall we have through this crisis advocated our clients and readers take a cautious stance and to find opportunities to hedge if levels in markets allow especially on the energy sensitive Asian currencies such as INR, KRW and PHP."

"Moving forward, while many of these currencies in Asia have already weakened with greater risk premia being incorporated in them, and as such the risk may be somewhat more two-way right now."

"We think the next phase for Asian currencies may be a shift towards concerns around growth and with that greater risk aversion in markets if the Iran conflict prolongs."

"This will likely mean growth sensitive and current account deficit emerging market currencies will likely show greater magnitude of underperformance moving forward, including the likes of INR, PHP, IDR, and KRW."

"We continue to think that CNY will show greater relative resilience within our region."

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