Asian currencies face pressure from high oil prices and rising US yields

Key facts

• Investors remained bearish on most emerging Asian currencies, according to a Reuters poll.
• Short positions on the Indonesian rupiah rose to their highest since late July.
• Bearish bets on the Philippine peso, Thai baht, and Indian rupee remained firm.
• High oil prices and rising US Treasury yields are pressuring Asian currencies.
• The South Korean won remained bullish for the fifth consecutive survey, supported by AI-related chip exports.
• The Malaysian ringgit stayed resilient due to its status as a net energy exporter.

Investors maintained a bearish stance on most emerging Asian currencies as elevated oil prices and rising US Treasury yields continued to pressure regional assets, a Reuters poll showed.

Short positions on the Indonesian rupiah increased to their highest level since late July, while bearish bets on the Philippine peso, Thai baht, and Indian rupee remained firm. High oil prices threaten to widen external deficits and fuel inflation in net energy-importing economies, while US Treasury yields have climbed to multi-decade highs, making Asian assets less attractive.

Jeff Ng, head of Asia macro strategy at SMBC, noted that higher oil prices are likely to erode the current-account buffers of net oil-importing economies, and widening yield differentials in favor of the dollar have made their currencies less attractive. He identified the Indian rupee, Philippine peso, and Thai baht as among the most vulnerable.

The baht has limited rate support to cushion it from elevated US yields, as the Bank of Thailand's policy rate is only 1%, according to MUFG analysts. Bearish views on the Indian rupee were at their highest since early June, though central bank interventions have limited its losses.

Conversely, bullish bets on the South Korean won persisted for the fifth consecutive survey, supported by strong AI-related chip exports that bolster the country's current-account surplus, according to SMBC's Jeff Ng. The won has gained over 5% against the dollar year-to-date, making it one of the few emerging Asian currencies in positive territory, alongside the Singapore dollar and the Chinese yuan.

The Malaysian ringgit remained resilient, benefiting from Malaysia's position as a net energy exporter. Bullish positions on the Chinese yuan extended for a year, while long bets on the Singapore dollar stayed consistent since early August.