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Fallout From War In Ukraine Boosts Oil Prices Unnerving Net Importers

ASIA FX

The U.S. threatened to impose a ban on imports of Russian oil in coordination with its allies, while press reports suggested that unilateral action is also being considered. Resultant surge in crude oil prices took its toll on net oil importers across Asia EM space, with heightened geopolitical tensions surrounding the ongoing Russian invasion further dampening appetite for riskier assets.

  • CNH: Spot USD/CNH jumped in early trade and remained afloat as the PBOC set the USD/CNY reference rate at CNY6.3478, 28 pips above sell-side estimate. Headlines from China's NDRC were trickling through, with its Vice Chair noting that China will not deliver flood-like stimulus to the economy. Elsewhere, China's trade surplus topped expectations in February.
  • KRW: South Korean won retreated, struck by the double whammy of general risk aversion and surging commodity prices. North Korea's ninth missile test this year may have amplified pressure to the KRW. Spot USD/KRW surged to its best levels since mid-2020.
  • IDR: Spot USD/IDR re-opened on a slightly firmer footing, with fallout from the war in Ukraine in the driving seat. Higher oil prices may have shielded the rupiah from a deeper sell-off amid aversion to take risk.
  • MYR: Spot USD/MYR was slightly firmer, likely responding to similar drivers as USD/IDR. Better oil prices helped prevent further ringgit sales. Note that Malaysia is expected to unveil the date of reopening its international borders this week.
  • PHP: Spot USD/PHP roared through the PHP52 figure on its way to its best levels since mid-2019. BSP Gov Diokno said higher oil prices may boost inflation this year (albeit he played down potential for impact on the peso, referring to the BSP's hefty FX reserves), while the government pledged targeted fuel subsidies.
  • THB: The baht sold off sharply as the Russian attack on Ukraine and its implications for the global oil market played into the pre-existing concerns about rising living costs and cast doubt on hopes of swift and strong recovery in the global tourism industry.
  • INR: The Indian rupee fell to its lowest point on record, with one analyst speaking with Bloomberg dubbing the situation in the oil market "the policy maker's nightmare."

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