BNY's Geoff Yu reports that balance-of-payments pressures in the Asia-Pacific (APAC) region are being shaped by the ongoing Iran conflict and disruptions in energy by-products, with currencies such as the Malaysian ringgit (MYR), Thai baht (THB), Australian dollar (AUD), and Philippine peso (PHP) coming under scrutiny [1]. The Gulf region's role in exporting essential energy by-products, including helium and urea, has become increasingly important, and the resulting supply shock is causing a negative terms-of-trade impact across APAC economies [1].
Core North Asian exporters are demonstrating resilience due to high reserve coverage, precautionary savings, and strong fiscal resources (excluding Japan), which are expected to help these economies withstand higher import costs over an extended period. As a result, significant FX or fixed income outflows are not seen as a major concern for these countries at present [1].
In contrast, Southeast Asia and Australia are facing fuel shortages and weaker terms of trade. Notably, President Marcos of the Philippines has indicated that the lack of jet fuel could even lead to planes being grounded, highlighting the severity of the situation. Australia, despite being a net exporter of natural gas, is experiencing shortages of refined petroleum, which is hindering a stronger terms-of-trade adjustment [1].
Despite these challenges, only regional currencies that were previously overheld have been net sold over the past month. MYR, THB, and AUD were already significantly underheld, so the incentive for cross-border investors to add hedges was limited. BNY expects markets to remain cautious on these currencies, but notes that the swift change in investor behavior may help build resilience and reduce risk premia over time [1].
CONCLUSION
The Iran conflict and energy supply disruptions are exerting balance-of-payments pressures on APAC currencies, particularly in Southeast Asia and Australia. While core North Asian exporters remain resilient, markets are expected to stay cautious on MYR, THB, AUD, and PHP. This cautious stance may ultimately foster greater resilience and reduce risk premia for these currencies.