J.P. Morgan On Oil & Asia FX, INR May Not Be As Vulnerable As In The Past

J.P. Morgan refreshes its analysis of oil prices on Asian FX... "Given the recent spike in oil prices, we refresh our analysis for vulnerability to oil prices. We note that in Asia FX, INR has historically shown the greatest sensitivity to higher oil prices. We regress NEERs of individual currencies against Brent prices and the spread between EM and DM PMIs, with the latter variable used to control for growth conditions. INR has historically shown the most negative beta to Brent prices, indicating it is the most vulnerable. On the other hand, SGD has shown the highest positive beta, indicative of relative resilience of the currency. Commodity exporters MYR and IDR show similar resilience."

"Historical sensitivity only tells half the story. INR may not be as vulnerable this time around, as India’s services surplus has picked up smartly over the last year, providing a valuable offset. Moreover, among speculative market participants, INR’s well-known vulnerability to oil prices often reflects in concurrent inverse price action between Brent and INR. However, other oil importers such as KRW, THB, and PHP are just as vulnerable to oil prices remaining elevated, via a protracted trade deficit. Indeed, we have noted that high oil prices are likely to be a drag on the aforementioned currencies. To this point we remain short KRW and underweight PHP (1%) in GBI-EM. For THB the improvement in the tourism balance counteracts dearer oil, and we assumed $90 Brent when we went long again in January."