Energy shocks drag rupiah and yen to fresh lows as new US tariffs compound pain for won and ringgit
[SINGAPORE] Some Asian currencies have been battered by a resurgent US dollar in the past week, weakening to lows against both the greenback and the Singapore dollar.
This is even as many Asian nations are set to defend their currencies, with Federal Reserve rate hikes projected after stronger-than-expected jobs data was released on Friday (Jun 5).
The rupiah sank to lows a few times in the past week, with the currency breaching the 14,000 threshold against the Singapore dollar on Wednesday. It also depreciated to an all-time low against the US dollar last Wednesday, crossing the 18,000 barrier.
Analysts have noted that the rupiah, yen and won have faced significant depreciation pressure due to the Fed’s continued hawkish monetary policy and the widening interest rate gap.
The rupiah, for instance, has been weighed down by rising oil prices linked to Middle East tensions and significant capital outflows from Indonesia’s bond and equity market.
Similarly, the yen has continued to languish near multi-year lows, despite government market intervention, due to the stubbornly wide interest rate gap between the Bank of Japan (BOJ) and the US Federal Reserve.
Bucking the trend, however, is the Singapore dollar. It has extended its outperformance against several regional currencies despite renewed geopolitical tensions and diverging economic fundamentals across Asia.
Investors have gravitated towards the Singdollar for its safe-haven status. Over the past month, it was up about 2.8 per cent against the rupiah and 0.5 per cent against the yen.
In the year to date, it has gained 8.4 per cent and 1.9 per cent against those currencies, respectively.
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Rupiah troubles
A “sell Indonesia” sentiment has been gaining traction as global investors lose confidence in the country’s sinking rupiah and tumbling stocks.
Just five months after hitting a record high in January, Indonesia’s benchmark Jakarta Composite Index has tumbled about 38 per cent to a near six-year low.
An upcoming MSCI reclassification as well as concerns over government interference in commodity exports have contributed to the sell-off.
Elevated oil prices have further strained the country’s fiscal position. Its trade surplus for April shrank to US$89 million from US$3.3 billion in March – the lowest in nearly six years.
The plunge follows a surge in crude oil and refined fuel imports. Indonesia’s annual inflation rate in May also moved closer to the top end of the central bank’s target range.
“(This) signals that the US-Iran war is now materially impacting Indonesia’s economy and external balance,” UOB Kay Hian analyst Suryaputra Wijaksana said in a note last Wednesday, with the impact on the rupiah expected to “persist throughout 2026”.
Bank Indonesia on May 29 said that it remained committed to maintaining the stability of the rupiah. Analysts from DBS on Thursday noted that the central bank has already been trying to draw inflows by keeping short-term rates elevated, including a prudent 50-basis-point hike to its policy rate last month.
However, UOB Kay Hian’s Wijaksana maintained that while interventions in the spot and non-deliverable forward markets will slow depreciation, they are “unlikely to reverse the trend”.
Yen intervention ineffective
The yen has continued to depreciate against both the Singdollar and greenback, even though Tokyo had stepped into the market between late April and late May to support the currency.
“The rise in global yields and higher energy prices have served to counter the attempts to strengthen the yen,” analysts from financial services company MUFG said in a Monday note.
Nevertheless, Hirofumi Suzuki, SMBC’s chief FX strategist and head of research group in the treasury department, on Wednesday said yen weakness will likely end if signs of easing tensions in the Middle East emerge.
He noted that the conflict’s upward pressure on crude oil prices is making it easier for yen-selling pressure to build.
Ipek Ozkardeskaya, senior analyst at banking and online financial services group Swissquote, on Thursday noted that the rapid depreciation of the yen puts “significant pressure on (Japan’s) economic outlook” while keeping the BOJ stuck between fighting inflation or supporting growth.
“Alas, the BOJ has little choice but to hike rates to truly reverse the yen’s depreciation,” she added. It is a move that Suzuki said could provide some support for the yen.
US tariffs to exert pressures
The newly proposed US Section 301 tariffs – designed to penalise trading partners for practices Washington deems unfair – are pressuring many trade-exposed Asian currencies.
Saktiandi Supaat, head of FX research at Maybank, noted that the tariff rhetoric has begun shifting exchange rates despite the underlying resilience of several regional currencies.
However, the Singdollar is set to remain stronger than its regional peers, as Singapore’s direct exposure to the proposed tariffs is generally lower than that of other economies.
The currency also benefits from robust macroeconomic fundamentals, he added.
Against the ringgit, the Singdollar was up about 2 per cent over the past month and was at 3.15 on Monday morning. Saktiandi stated that although both currencies’ resilience has held the pair near 3.10 recently, the proposed tariffs have nudged the rate to the 3.12 level.
He expects the pair to trade within the range of 3.10 to 3.15 in the coming weeks.
The new tariff impact will be more pronounced on the won, he noted. The Singdollar has climbed about 4.2 per cent against it in the past month, reaching a record peak of 1,206 on Monday morning.
Saktiandi said that the tariff proposals will weigh more heavily on the won due to existing negative sentiment, compounding domestic pressures such as high energy import costs and stock sell-offs.
This weakness could prompt policy rate hikes in South Korea, with Maybank expecting the Singapore dollar/won pair to trade between 1,150 and 1,250.
Against the baht, the Singdollar was up about 0.4 per cent over the month – at 25.5 on Monday morning – driven by soft gold prices, and is up about 4.1 per cent in the year to date.
Saktiandi said he expects the Singdollar/baht to trade around 25 in the 23.5 to 27.5 range.
Still, the Thai currency faces longer-term domestic challenges. Bank of America economist Pipat Luengnaruemitchai on May 26 noted that structural headwinds, a potential energy shock and a projected shift to a current account deficit could create a significant inflection point for the baht that could weaken it further.
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