Investors are approaching this week with caution as they anticipate a slew of central bank meetings, most notably the U.S. Federal Reserve’s decision and guidance on Wednesday. As a result, key markets in Asia are seeing narrow trading ranges.
However, one exception to this cautious approach is the oil market. Oil prices continue to climb steadily, with Brent crude up 30% in the last three months, and reaching new highs for the year. While this may benefit energy producers in Asia such as Indonesia, it poses challenges for energy importers like Japan and South Korea.
Interestingly, currencies of both energy importing and exporting countries are feeling the impact. The yen, despite the potential for a hawkish shift in policy from the Bank of Japan, is reaching new lows for the year. South Korea’s won has depreciated around 5% since July, India’s rupee is hovering near record lows, China’s yuan is struggling to rebound, and Indonesia’s rupiah has fallen 5% since May.
While the strength of the U.S. dollar and resilient U.S. economic data are contributing factors, the spike in energy prices could also be exacerbating the vulnerability of Asian currencies. Currency traders may see this as an opportunity to exploit the weakness in Asian currencies.
Central bank meetings in Taiwan, the Philippines, and Indonesia on Thursday, as well as Japan on Friday, may address the impact of the oil price spike. It remains to be seen how these central banks will respond and what outlook they will provide.
In terms of economic data on Tuesday, the Reserve Bank of Australia’s meeting minutes will be closely watched, along with trade data from Malaysia and balance of payments figures from the Philippines.