A turbulent start for Asian countries because of the turmoil in the oil market caused by geopolitical tensions in the Middle East.
The Indian rupee, the South Korean won and the Philippine peso report a sharp jump in volatility over the last two weeks after the escalation of US-Iran relations, which has led to serious oil movements. If the WTI continues to rise in price, it will burden the three countries with higher import costs, slowing economic growth and weighing on their national currencies.
Rising risks in the region will also have a say in Asia, especially in countries that are heavily dependent on black gold imports. This can lead to a deterioration of trade balances and a widening deficit and slowdown in cash flows to these countries.
An oil shock is the last thing India needs. The country already maintains a deteriorated balance due to its fiscal deficit and slower economic growth. A $ 10 price hike will expand the country’s current balance by nearly 40 points and add about 50 to inflation. This will also have a negative impact on the Indian rupee. It can be cheaper for $ 74 a dollar.
When the first Iranian missiles fell at US bases in Iraq, the South Korean won fell 1.1%. A longer rise in the price of oil will stop the good performance of the currency, which is the best FX currency in Asia.
Rising inflation due to high prices, combined with the lack of economic inertia, can also lead to an outflow of capital from the state, which will be extremely negative. The yarn could fall to 1250 a dollar if the tension escalates further.
The Philippine peso is also having a difficult time continuing last year’s rally in the current Middle East situation. The price of oil puts pressure on the trade balance.
Currency can also be severely affected, because not only is price a problem – Filipino workers working in the region can return. This can severely reduce monetary transactions to the Philippines, and this is one of the major economic pillars of their economy.
The oil spike last week that swept those three currencies has already gone. But this situation should serve as a warning to investors, so what could be the rise in volatility.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
Trader Martin Nikolov