Rise in Oil Prices and US Bond Yields Pressure Asian Currencies
Currencies of energy-importing Asian countries are losing value due to rising oil costs and increasing US bond yields.
The increase in oil prices and rising US bond yields have created serious pressure on the currencies of energy-importing Asian nations. The MSCI emerging market currencies index recorded a notable decline recently.
Sharp Decline in MSCI Index
The disruption of foreign trade balances and the triggering of inflation by rising oil prices have led to depreciations in Asian currencies.
The MSCI emerging market currencies index dropped by 0.4 percent yesterday, experiencing its largest daily decline since mid-May.
Rupiah and Rupee Diverge Negatively
The Thai baht, Philippine peso, and Indian rupee lost between 0.1 percent and 0.3 percent in value during the day.
Meanwhile, the Indonesian rupiah fell to the 17,900 level against the dollar with a loss of up to 0.6 percent, seeing its lowest level since early August.
Losses Since the Beginning of the Year
Since the beginning of the year, the Indonesian rupiah has declined by 6.81 percent, the Indian rupee by 6.27 percent, and the Philippine peso by 6.21 percent.
During the same period, the South Korean won gained 5.17 percent and the Chinese yuan gained 4.08 percent, positively separating themselves from other currencies in the region.
Impact of US Bond Yields
One of the main factors challenging Asian currencies has been the coincidence of the oil shock with the rise in US bond yields.
While strong manufacturing data reinforced expectations that the Fed could raise interest rates, the dollar continued to hover near its two-month peak.
Central Banks' New Balance
High oil prices directly affect the monetary policy decisions and inflation-fighting strategies of Asian central banks.
While the increase in energy costs magnifies the risk of imported inflation, it also narrows the room for interest rate cuts.