Asian currencies: Indonesian rupiah, Thai baht decline as ME conflict strengthens dollar

SINGAPORE: The currencies of net oil importers Indonesia and Thailand fell each lost ground on Monday, as the US dollar strengthened and oil prices rose after the military conflict in the Middle East, while a blow out US jobs report bolstered prospects of interest rates staying higher for longer. The Indonesian rupiah hit its lowest since late December, while the Thai baht was headed for its worst day in a week.

Shares in Thailand fell 0.7%, hitting their lowest since early Jan 2021, while those in China declined 0.4% to touch their weakest level since Sept. 22. Equities in Mumbai slid 0.5%.

Investors were risk-averse after Israeli forces clashed with gunmen from the Palestinian group Hamas on Sunday, 24 hours after the militants launched a surprise attack on Israel. The Israeli shekel was last down more than 2%.

“The market today definitely is focusing on the Middle East... and higher oil prices as well, which usually doesn’t do well for Asia because they’re all oil importers,” said Irene Cheung, a senior Asia strategist at ANZ.

If there is a further escalation of tension in the Middle East, it’s not going to work well for Asia, because that could actually benefit the dollar on the flight to safety and also boost oil prices, Cheung said.

The Middle East conflict pushed up oil prices by more than $3 a barrel, creating additional inflationary pressure for key importers such as India, Indonesia and Thailand.

Thailand’s baht has been already under pressure because of the policies of the new government, which has raised concerns about a widening fiscal deficit from higher spending.

Friday’s US employment report blew past expectations, with jobs increasing by the most in eight months in September, adding to the case that the Federal Reserve might have to raise interest rates again.

“The outsized payroll number raises the prospect the Fed may hike again, but it’s not a clincher,” analysts at ANZ wrote in a note, adding that the September consumer price index data due later this week should be more revealing of the rate prospects.

The South Korean won weakened 0.5% and was on track for its worst day since Sept. 26. The Singapore dollar retreated 0.2%, while the Philippine peso and the Malaysian ringgit depreciated 0.3% each.

Bucking the trend, the Chinese yuan advanced 0.3% as trading resumed after a week-long holiday.

Markets now await a monetary policy decision from the Singapore central bank and inflation data from India and China later in the week.