Brent crude’s rise above US$100 a barrel has emerged as a key risk for global markets, with OCBC warning that a sustained increase could intensify inflation and interest-rate pressures while weighing on oil-importing Asian economies.
In its latest market report, OCBC said oil was the main market mover overnight as escalating US-Iran attacks on shipping and renewed strikes on Saudi energy infrastructure heightened concerns over further disruptions to Middle East energy supplies.
Flows through the Strait of Hormuz remain below pre-war levels, while uncertainty over actual supply volumes and continued shipping disruptions have kept physical oil markets tight and sustained a geopolitical risk premium.
The surge in crude prices weighed modestly on equities and revived inflation concerns, while the 10-year US Treasury yield approached 4.84%. Gold also edged higher amid renewed geopolitical uncertainty.
The US dollar was comparatively subdued, however, as continued Japanese yen strength weighed on the Dollar Index.
OCBC said oil is likely to remain an important cross-asset driver in the near term. A sustained move above US$100 could reinforce inflation and interest-rate risks and become a bigger headwind for oil-importing Asian economies, while a normalisation in shipping flows could ease pressure on the broader risk environment.
Against this backdrop, OCBC said SGD/MYR climbed to around 3.22, a multi-month high, with the move driven largely by weakness in the ringgit rather than a sharp strengthening of the Singapore dollar.
Since the end of August, USD/MYR has moved higher while USD/SGD has edged slightly lower, suggesting the rise in the cross has been primarily attributable to the Malaysian currency.
OCBC attributed recent ringgit weakness to higher global bond yields, softer risk sentiment and a sell-off in Malaysian Government Securities (MGS).
Although higher oil prices would traditionally provide Malaysia with some terms-of-trade support, OCBC said the current surge has also revived global inflation and interest-rate concerns, offsetting some of that benefit.
The bank stressed that Malaysia’s domestic fundamentals have not changed materially, with economic growth remaining firm and investment and exports continuing to provide support.
As such, OCBC does not view the latest currency move as the beginning of a sustained ringgit depreciation trend, although SGD/MYR could remain elevated if global yields stay high and MGS remain under pressure.
SGD/MYR was last around 3.2170, with bullish momentum on the daily chart intact, although the relative strength index has moved into overbought territory.
OCBC sees immediate resistance around 3.2150 to 3.2200. A decisive break above that range could put the next resistance near 3.2540, while support is seen at 3.2100 and 3.2000
