Oil key in Asia currency movement

Energy exporters gather in Austrian capital on June 22 to decide on output curbs

Emerging Asian currencies have bounced back over the past two weeks as oil prices have fallen. Their recovery will face a crucial test when the world’s major crude producers meet in Vienna later this month.

Energy exporters gather in the Austrian capital on June 22 to decide whether to maintain output curbs that propelled oil to a three-year high last month, or follow a proposal for reviving production discussed by Saudi Arabia and Russia. Indonesia’s rupiah and India’s rupee have both rallied about 2 per cent since the day before the SaudiRussian talks on May 25.

“Since the oil market is pricing in a boost in production, any disappointment in output which pushes oil prices higher should be negative for emerging Asian currencies,” said Maximillian Lin, an emerging markets Asia strategist at NatWest Markets in Singapore.

Brent crude has dropped to $75.75 (Dh278) per barrel from as high as $80.50 in May amid speculation an increase in supply will curtail a rally that started in early 2016. Energyimporting nations such as India and Indonesia are particularly vulnerable to rising oil prices as they push up inflation and put pressure on their trade balances.

The Bloomberg JPMorgan Asia Dollar Index, which tracks 10 Asian currencies against the greenback, has rallied 0.8 per cent from this year’s low on May 29.

While the rupee, rupiah and Philippine peso stand to lose the most from costlier crude, the ringgit is seen benefiting as Malaysia is the region’s only major net energy exporter.