Asia FX: Oil shock seen manageable – BNY

BNY’s Geoff Yu argues that Oil near $95 is a shock for Asian energy importers but not a trigger for a broad balance-of-payments crisis. He highlights stronger current-account buffers in ASEAN and India, prior fiscal consolidation and lighter FX positioning as key supports, while urging monitoring of central bank intervention and reserve data to gauge any deterioration.

Asia FX resilience to Oil spike

"Oil at $95 is an FX shock, but not a broad Asia balance-of-payments crisis. ASEAN and India have stronger current-account buffers and lighter positioning, while the cleaner opportunity is in high-carry commodity FX such as BRL, CLP and ZAR. NOK may get oil-linked demand, but elevated holdings and limited Norges Bank buying cap the upside."

"A sharp rise in crude prices isn’t trivial for Asia’s energy importers. Taiwan and South Korea were already facing capital outflows on the financial account, and a lack of dollar liquidity will exacerbate currency weakness. However, we would not overplay the risk of destabilizing pressure or a financial-stability event."

"The region’s balance-of-payments position is also in relatively good shape. Official data indicate that in the run-up to the conflict, ASEAN and India were running the highest current-account surpluses in a decade. The reserve drain around the world in March was severe, and while this had a knock-on impact on government bond holdings globally, ultimately the process was manageable."

"Vigilance is warranted. As Bank Indonesia noted in Wednesday’s decision, the shock calls for “closer fiscal-monetary policy synergy” to bolster external resilience. Asia has made significant progress on this through Q2, and we expect that resilience to hold in the near term."

"Monitor Asian central bank intervention and oil-driven import pressure but treat Asia stress as manageable unless reserves or current-account data deteriorate."