The Zhitong Finance App learned that the sharp rise in oil prices and the artificial intelligence (AI) boom are intensifying the polarization pattern in the foreign exchange market: most emerging Asian currencies have deepened their decline, while other currencies (such as the Korean won) have been buffered.
The Philippine peso is the worst performing currency in Asia this year. The exchange rate against the US dollar reached a new low on Tuesday. High crude oil prices hit net energy importers. The Indonesian rupiah is hovering near its historic low, while the Thai baht is approaching an 18-month low. In contrast, the won traded at a high of about two years, making it the best performing currency in the region.
The Malaysian ringgit performed relatively well, thanks to the country's exposure to AI and its status as a net exporter of energy. Investors say these trends are paving the way for greater regional differentiation, highlighting the advantages enjoyed by countries that have spent years building scientific and technological capabilities.
“Economies that benefit from a boom in technology exports should be able to maintain relative resilience,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA. “Economies lacking this buffer will be increasingly vulnerable to rising energy import bills and a tightening global financial environment.”
Soaring energy prices are driving up import costs for energy-dependent economies and worsening their trade balances. The price of Brent crude oil rose to $117 per barrel last Friday, the highest level since April. It remained high at around $114 on Tuesday.
Central banks in the Asian region are taking steps to defend their currencies. The Bank of Indonesia directly interfered in the spot and forward markets and increased hedging incentives to attract foreign securities investment inflows. The Bank of the Philippines unexpectedly raised interest rates by 50 basis points last week in an attempt to contain inflation and support the peso by widening interest spreads against the Federal Reserve.
“If depreciation pressure intensifies, foreign exchange intervention may increase, and if the risk of inflation becomes more enduring, further interest rate hikes cannot be ruled out,” said Christopher Wong, strategist at OCBC Bank. “At the end of the day, central banks can help mitigate excessive foreign exchange fluctuations, but their ability to reverse depreciation pressure is still limited.”
The pressure from rising energy prices is not limited to Asia. The Egyptian pound fell to a record low in offshore trading this week as tension in the Middle East escalated. On Monday, the Ugandan shilling fell to a new low, and the central bank of Uganda used foreign exchange reserves to defend the local currency exchange rate.