According to MUFG’s Lloyd Chan, a rebound in oil prices and persistent inflation risks are exerting downward pressure on Asian currencies, particularly the Indian Rupee (INR) and Thai Baht (THB) [1]. Both currencies were the worst performers among Asian FX last week, each depreciating by around 1% against the US dollar, despite a somewhat softer US Dollar Index (DXY) [1]. This underperformance highlights their heightened sensitivity to oil price movements, with Brent crude rebounding to approximately USD88 per barrel due to rising geopolitical tensions in the Middle East and reduced tanker traffic through the Strait of Hormuz [1].
The Thai Baht appears especially vulnerable, with risks skewed to the downside as Thailand faces a deteriorating external balance and current account deficits [1]. Elevated US gasoline prices, which remain above pre-conflict levels, further underscore the inflationary pressures impacting these economies [1].
While US Treasury yields have eased following softer June CPI and PPI data, they remain above 4% [1]. The University of Michigan survey indicated that 1-year consumer inflation expectations moderated to 4.2% year-over-year in July from 4.6% previously, though longer-term expectations (5-10 years) held steady at 3.3% [1]. These factors contribute to ongoing concerns about inflation and currency stability in the region.
CONCLUSION
The rebound in oil prices and persistent inflation risks are weighing heavily on the Indian Rupee and Thai Baht, with both currencies underperforming against the US dollar. Market sentiment remains cautious, particularly for the Thai Baht, as external imbalances and elevated inflation expectations persist.