Rupee Slips With Rupiah as Iraq Drives Up Oil: Chart of the Day

Surging oil prices are taking a toll on currencies of India and Indonesia as the energy-importing nations face wider trade deficits and bigger fuel-subsidy bills.

The CHART OF THE DAY tracks weekly performances of India’s rupee and Indonesia’s rupiah starting from June 2013. The lower panel shows West Texas Intermediate crude prices trading near a nine-month high on concern that escalating violence in Iraq will disrupt supplies from the second-largest producer in the Organization of Petroleum Exporting Countries.

“The rupee and the rupiah are the currencies most prominently at risk due to the oil deficits,” said Sacha Tihanyi, a Scotiabank strategist in Hong Kong. “Because of subsidies, demand is not responsive to higher prices so it can increase the external deficits. The rupee is likely to be an underperformer on oil price increases as it holds the potential to stress both the trade account and the budget.”

The currencies are Asia’s worst performers this month. The rupiah slumped 2.7 percent in June to 11,997 per dollar yesterday, while the rupee slid 2.2 percent to 60.4025, prices from local banks compiled by Bloomberg show. India’s currency has reversed a 2.1 percent gain in May, the best in the region, that was powered by a surge in investor confidence following the nation’s clearest election verdict in three decades.

Morgan Stanley counts rupee and rupiah among the “fragile five,” a term coined by the bank in 2013 to describe emerging-market currencies that are vulnerable because of their trade deficits. Currencies of Turkey, South Africa and Brazil are the others. India’s trade shortfall reached a 10-month high of $11.2 billion in May, official data show, while Indonesia’s imports exceeded exports by $1.96 billion in April, the widest gap since July 2013.

WTI for July delivery, the U.S. benchmark, closed at a nine-month high of $106.91 a barrel on June 13, while Brent in London, used to price more than half of the world’s crude oil, settled at $113.41 the same day. Brent prices could rise to $120 to $125 a barrel if Iraqi supplies are disrupted, Societe Generale SA said in a June 16 report.

Before it's here, it's on the Bloomberg Terminal.