How do US$100 oil and 5% US yields divide ASEAN currencies?

Global Pressures Drive Currency Divergence

Global financial markets are experiencing a dual economic shock: crude oil prices have surpassed US$100 a barrel following drone attacks on Monday, 14 September, and the US 10-year Treasury yield crossed 5 per cent on Tuesday, 15 September, for the first time in three years.

This combination of persistent energy costs and rising global yields is creating a sharp divergence among regional currencies, contrary to earlier expectations that a softer US dollar might support ASEAN markets.

Christopher Wong, an FX strategist at OCBC, noted that while a weaker US dollar can provide some assistance to regional currencies, this support is quickly diminished when oil prices and US yields are increasing simultaneously.

Outperforming Currencies Amidst Shocks

Despite the rise in oil prices, certain ASEAN currencies have demonstrated relative resilience against the US dollar. The Singapore dollar, Malaysian Ringgit, and Vietnamese Dong have held up well.

DBS analysts, in a note dated 10 September, attributed Singapore's performance to its consistent balance-of-payments surpluses, strong foreign direct investment (FDI) inflows, and export growth driven by artificial intelligence, alongside proactive monetary tightening by the Monetary Authority of Singapore.

Malaysia, as a net exporter of oil and gas, has seen its trade surplus cushioned by higher energy prices. Vietnam's Dong is supported by sustained FDI and passive fund inflows, particularly ahead of its FTSE Russell secondary emerging market reclassification scheduled for 21 September.

Underperforming Currencies Face Import Costs

In contrast, the Philippine Peso, Thai Baht, and Indonesian Rupiah have experienced greater pressure due to their substantial reliance on oil imports. The Philippines and Thailand have seen their current account positions deteriorate under increasing import bills. The Philippines has also contended with weak appetite from portfolio investors.

Thailand's acute current account pressures are only partially offset by post-election FDI interest. While Indonesia's Rupiah was weighed down by a wider second-quarter current account deficit, it has shown signs of stabilisation, supported by capital inflows into debt instruments and Bank Indonesia Rupiah Securities, as observed by DBS analysts.

Duration of Energy Costs and Policy Responses

Market observers, including OCBC's Christopher Wong, emphasise that the key variable for ASEAN economies is not merely whether oil has breached US$100, but the duration of these elevated energy prices.

A short-lived spike is manageable, but a prolonged period of high oil, especially if coupled with higher US yields and renewed US dollar strength, would pose greater challenges and likely lead to more pronounced differentiation across ASEAN currencies. Despite currency pressures, regional central banks may have limited appetite for aggressive interest rate increases.

DBS analysts anticipate reduced scope for currency-driven monetary tightening, suggesting that domestic inflation will become the primary focus for policymakers in the coming months.

Saktiandi Supaat, head of FX research and strategy at Maybank, also warned that supply-side factors, such as El Nino-related disruptions to agriculture, water, and electricity, warrant close monitoring for their potential to keep inflation sticky. Sustained investment, credible policy responses, and sound fiscal management will remain vital buffers for ASEAN economies.