Ahead Today
G3: US ADP employment, PMI, ISM services index
Asia: China PMI, Taiwan export orders, India PMI
Market Highlights
The broadening conflict involving Israel, Iran, and the US continues to weigh on global risk sentiment, keeping markets in a risk-off mode. Brent prices have jumped past US$80/bbl, a cumulative gain of around 13% since war began on 28 February, raising inflation concerns at the margin and adding to global growth headwinds. The US dollar (DXY) has also gained 1.5% this week, supported by safe-haven demand and a moderation in market pricing for Fed rate cuts this year (~46bp of easing being priced now, down from 61bp prior to the war. Notably, the broad US dollar index (DXY) has extended gains above key support levels and looking to test resistance at the 100 level.
That said, the oil market reaction has so far been more contained than during the early weeks of the Russia–Ukraine war. While crude prices have risen, they remain well below the extreme spikes seen in early 2022. In contrast, gas prices have shown a more pronounced response. For now, Trump has announced that the US would provide insurance guarantees and naval escorts for oil tankers transiting the Strait of Hormuz to ensure the “free flow of energy to the world.” Separately, French President Macron indicated that France would deploy an aircraft carrier to help secure maritime routes in the Mediterranean. Oil prices retreated from a high near US$85/bbl back towards the US$82/bbl area, suggesting some easing of supply disruption fears.
Regional FX
How long the conflict lasts will be critical for global markets. A short-lived military campaign, coupled with oil prices remaining contained, would help mitigate downside risks to Asian currencies.
Asian currencies are increasingly caught in the crosscurrents of higher oil prices, a stronger US dollar, and deteriorating risk sentiment. Regional FX has broadly weakened against the dollar this week, with KRW leading losses at around -3.3%. Notably, the Malaysian ringgit has also come under pressure, falling about 1.4%, despite being one of the stronger performers in the region previously. The CNY has weakened more modestly, down around 0.8%.
The ringgit’s underperformance is particularly instructive. As a net oil exporter with relatively strong prior FX performance, MYR’s vulnerability highlights how sensitive regional currencies have become to global risk dynamics. The recent Asia FX moves underscore fragile global sentiment and rising global growth uncertainty as energy prices climb and geopolitical risks remain elevated.