Oil Price Shock Meets AI Boom: Asian Emerging Currencies Diverging Sharply

The oil price surge and the artificial intelligence (AI) boom are deepening the divergence in the foreign exchange market: most Asian emerging currencies are extending losses, while otherssuch as the South Korean wonare finding a buffer. The Philippine peso is Asia's worst-performing currency this year, hitting a fresh record low against the US dollar on Tuesday as elevated crude oil prices weigh on net energy importers. The Indonesian rupiah is hovering near a record low, while the Thai baht is approaching an 18-month low. In contrast, the South Korean won is trading near a two-year high, making it the region's best-performing currency. The Malaysian ringgit has held up relatively well, supported by the country's AI exposure and its status as a net energy exporter. Investors say these moves are setting the stage for greater regional divergence, underscoring the advantages enjoyed by countries that have spent years building up their technology capabilities. "Economies benefiting from the technology export boom should see their currencies remain relatively resilient," said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA. "Economies lacking that buffer will become increasingly vulnerable to rising energy import bills and tighter global financial conditions." The energy price surge has driven up import costs for energy-dependent economies, worsening their trade balances. Brent crude rose to $117 a barrel on Friday, the highest level since April. It remained elevated at around $114 on Tuesday. Central banks across Asia have stepped in to defend their currencies. Bank Indonesia intervened directly in the spot and forward markets and increased hedging incentives to attract foreign portfolio investment inflows. The Philippine central bank unexpectedly raised rates by 50 basis points last week, seeking to curb inflation and support the peso by widening the interest rate differential with the Federal Reserve. "FX intervention could intensify if depreciation pressure builds, and further rate hikes cannot be ruled out if inflation risks become more persistent," said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. "Ultimately, central banks can help temper excessive FX volatility, but their ability to reverse depreciation pressure remains limited." The pressure from rising energy prices is not confined to Asia. As Middle East tensions escalate, the Egyptian pound fell to a record low in offshore trading this week. On Monday, the Ugandan shilling hit a fresh low, prompting the Bank of Uganda to draw on foreign exchange reserves to defend the currency.