OCBC strategists Sim Moh Siong and Christopher Wong report that Asian FX has softened again as Oil prices jump on renewed Middle East tensions and concerns over the Strait of Hormuz. They argue that higher energy import bills, inflation risks, firmer US Dollar (USD) and weaker risk sentiment are a negative mix for regional currencies, with Philippine Peso (PHP), Indian Rupee (INR) and Thai Baht (THB) most vulnerable while Singapore Dollar (SGD) is expected to hold up relatively better.

Oil-sensitive currencies face renewed headwinds

"Asian FX struggled overnight as the late-Apr/early May relief proved short-lived. Oil prices jumped after fresh re-escalation in the Middle East, with reports of Iranian missile/drone attacks on the UAE and incidents around the Strait of Hormuz raising concerns that the fragile ceasefire may be at risk."

"The renewed oil shock revives the familiar negative mix for Asian FX — higher energy import bills, inflation risks, firmer USD/US Treasury yields and softer risk sentiment."

"In this environment, oil-sensitive Asian FX including PHP, INR, THB are likely to remain on the back foot, while lower-beta currencies such as SGD may continue to hold up relatively better, albeit not immune to a renewed oil and USD shock."

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