Surging oil prices have put pressure on Asian currencies, but the impact has been magnified by other factors influencing the region, analysts told RiskNews’ sister publication, FX Week .The high oil price environment has been an ongoing affair since the end of last year, but surging prices are putting pressure on the largely oil-importing countries in the region. September 2004 crude oil futures have risen by 40% since the start of the year, and some analysts expect that the average for the Opec basket oil price will be $35 a barrel in 2004.
According to a study by the Asian Development Bank, the Philippines, Singapore, Thailand, India and Hong Kong are likely to be the most negatively affected. Historical correlations with oil prices over the past six months show Hong Kong three-month forwards (54%), the Indian rupee (46%), the yen (41%) and the Thai baht (31%) with the highest association of currency weakness with rising energy oil prices, said David Mann, senior international economist at Standard Chartered in London.
But analysts warn that high oil prices must be viewed in the context of global economies. There have also been concerns over interest rate hikes in the US, leading to a slowdown in growth, globally, in the world trade cycle. "There’s probably a twofold impact because you get directly hit and then you get hit indirectly vis-a-vis the export channel," said Arthur Woo, economist at HSBC in Hong Kong.
The weakness does depend partly on what the demand conditions are like in the rest of the economy as well as external growth prospects, and consequentially the outlook for Asian exports in general, says Sameer Goel, regional strategist at Bank of America in Singapore. This, coupled with weak local confidence, spells bad news for some currencies.
However, Goel notes that that weakness is to some extent "just an unwinding of appreciation".
Others believe weakness also comes from strength in the US dollar that is unrelated to the oil factor. "Everybody was long Asia and short dollars, now you’ve got all these Fed rate hikes so people are reversing their positions," said another unnamed strategist.
More on Economics
A contrarian, upbeat view of the long-term economic outlook
Economists, risk managers and traders must learn the lessons of crisis, says Kaminski
The surprise decision by the Federal Reserve last month not to scale back its quantitative easing programme will create more volatility, says economist
IMF chief economist says ‘three-speed’ global economy could be dangerous
Sign up for Risk.net email alerts
Sanjay Sharma talks about risk transparency and how his book helps achieve it.
A five-minute formula from Alexander Denev that takes you through a simple probabilistic graphical model and explains how and why these are used. Find out more about the ground-breaking book, Probabilistic...
Industry leader Vincent Kaminski discusses the challenges faced by energy markets and his new book, Managing Energy Price Risk, 4th Edition.
Momtchil Pojarliev talks about his book, The Role of Currency in Institutional Portolios, currency investing and the potential role of currencies in institutional portfolios.
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.