Middle East Risk Accelerates "Crude Oil → Strong Dollar → Weaker Asian Currencies": The Market's True Sentiment Reflected in the Won and Rupee

Middle East Risk Accelerates "Crude Oil → Strong Dollar → Weaker Asian Currencies": The Market's True Sentiment Reflected in the Won and Rupee

As military conflicts in the Middle East escalate, the foreign exchange market is enveloped in an atmosphere of "defense first." In situations where risk assets like stocks and cryptocurrencies are more likely to be sold, funds tend to flow towards "safe havens" such as the US dollar and gold. The recent price movements followed this textbook pattern precisely. The dollar was bought as a safe currency, and crude oil rose due to supply concerns. As a result, Asian currencies showed a mixed direction, but overall, the heaviness of the upper price range was a noticeable trend.


1) The "Oil Shock" Divides Currency Fortunes

This time, particular attention was paid to the "damage that rising oil prices inflict on currencies." When Middle East risks are perceived, caution towards key maritime routes and supply chains increases, making energy prices more volatile. Countries that rely on oil imports are more likely to face deteriorating trade balances and rekindled inflation, leading to currency selling. As the article indicated, the backdrop for the South Korean won and Indian rupee being on the "losing side" is heavily influenced by this structure.


In reality, India is highly dependent on oil imports, and instability in the Middle East tends to burden both the current account balance and prices. The market operates on a simple yet powerful association: "the higher the oil price, the stronger the headwinds for the rupee."


2) Reasons for Selling the Won and Rupee—Different Underpinnings for the "Same Decline"

The South Korean won is a prime example of a currency that is easily sold during risk-averse phases. As an export-driven economy, it is susceptible to global economic fluctuations, and when geopolitical risks rise, foreign funds are more likely to withdraw. Additionally, being an energy-importing country makes it sensitive during periods of rising oil prices. This article also depicted the won's depreciation as a relatively prominent movement.


On the other hand, the Indian rupee operates under a "three-way struggle" involving "oil," "capital flows," and "government stance." Reports suggest that the higher the oil price and the more the dollar appreciates due to risk aversion, the more the rupee is likely to test critical levels. In the market, there is a strengthening demand for hedging, including NDFs (non-deliverable forwards), making it a phase where downward pressure on the rupee is easily amplified.


3) "Asian Currencies Are Mixed"—Different Dynamics Shown by the Yuan and Yen

However, not all Asian currencies collapsed simultaneously. As the article conveys, the Chinese yuan showed a certain degree of stability, supported by the government's benchmark rate (midpoint) setting. Even when market risk sentiment deteriorates, currencies with a strong managed float characteristic are more likely to have their short-term price movements influenced by "government intentions."


The yen is not straightforward either. While there are instances where it is bought as a safe asset, in phases of strong dollar appreciation, the yen can also be pressured. This time, there was a noticeable fluctuation that could not simply be labeled as "risk aversion equals yen appreciation," reflecting the market's delicate investor sentiment.


4) What the Market Fears Most: "Prolongation" and "Logistical Bottlenecks"

The core of the current market situation lies not so much in the news of the battles themselves, but in "how long it will last" and "whether there will be substantial disruptions to logistics and energy supply." Reports highlight the risk of key routes being blocked, which could spread to overall related costs, not just oil, as a point of caution.


Moreover, rising oil prices have a "two-stage" effect.

  • Stage 1: Currencies of importing countries are sold, and inflation concerns intensify

  • Stage 2: Expectations for interest rate cuts recede, and the outlook for the economy and monetary policy wavers


When this chain reaction becomes apparent, the market finds it difficult to "justify holding onto risk assets."

5) What Was Discussed on Social Media—Keywords: "92," "Strait," "Cost of Living"

The recent developments spread on social media not just as "financial talk" but also connected to everyday life perceptions. The tone of posts was broadly divided into three categories.


(1) The Numbers-Oriented Group: "USD/INR Eyes 92"
Some market-watching accounts suggested that if oil prices rise and the dollar strengthens, the rupee could head towards the "92 range." This aligns with the market outlook discussed in reports (awareness of critical levels).


(2) Geopolitics × Economics Group: "Strait Risk = Everything Gets Expensive"
The association that if key maritime routes are disrupted, not only energy but the overall logistics costs will rise was prominent. Even when discussing stocks and forex, the conclusion often returned to "prices" and "inflation." This context resonates not only with market participants but also with the general public.


(3) The Philosophical/Resigned Group: "At That Point, It's Not Just About Forex"
Some responses were somewhat resigned, suggesting that if the situation worsens, it becomes a matter "beyond forex gains and losses." There were also posts that used humor to dilute the fear, reflecting the unique atmosphere of a crisis situation.

6) Investor Perspective: Key Points to Watch Next

Finally, let's organize the current "mixed Asian currencies" market from the following perspectives.

  • Crude Oil Price Levels and Volatility: Directly impacts the pressure on currencies of importing countries (won, rupee, etc.)

  • Whether the Dollar's Safe-Haven Buying Continues: If the dollar continues to rise, Asian currencies will find it hard to recover

  • The Stance of Each Country's Authorities: Examples like the yuan, where a "policy wall" provides short-term support

  • Capital Flows in Emerging Markets: Hedging demand and the inflow/outflow of foreign funds can accelerate declines


Geopolitical risk markets update quickly. Therefore, the market searches for the next move not only through "events" but also by using the chain of "prices (oil) → currencies → monetary policy" as a clue. The decline of the won and rupee can be seen as a sign that this chain has already begun to turn.


Source

Related Articles