ASEAN currencies have been resilient despite the oil spike

 With many Asian countries dependent on oil imported from the Persian Gulf, we’re examining how currencies in the ASEAN bloc have reacted to the current geopolitical crisis. Historically, they have tended to trade in sync with each other, and this episode is no different: as Brent crude soared from the USD 70 range to surpass USD 95, there was broad depreciation across the region.

However, it’s arguable that this depreciation has been less tied to concern about damage to ASEAN economies, and more a function of the US dollar returning to its pre-Trump status as a safe haven.

Our second chart illustrates this using trade-weighted exchange rates, also known as the nominal effective exchange rate (NEER) for a given country. NEER allows economists to strip away the effect of the outsized strength of the dollar in global markets, gaining a more holistic perspective on an economy’s interdependence with major trading partners.

Our final charts take a closer look at Malaysia. As an oil producer, it’s notable that Malaysia’s ringgit (and, to a lesser extent, Indonesia’s rupiah) depreciated somewhat less than the heavily import-dependent Philippines‘ peso and Thai baht.

However, the ringgit’s relationship with oil has become less important post-Covid, as our correlation charts show. The MYR seems less likely to return to a “petro-currency,” with its performance instead likely governed by the country’s ability to navigate broader economic uncertainties.

So far, fund-flow data from EPFR suggests that international flows to Malaysian bonds stayed resilient for longer than equity flows, which dried up in the immediate aftermath of the Feb. 28 US and Israeli action.