MUFG is maintaining a defensive approach to Asian foreign exchange as the US-Iran conflict continues to add external pressure. Higher US yields and higher oil prices are supporting the US dollar and weighing on Asian currencies. Several Asian currencies have fallen to fresh lows versus the US dollar since the conflict began. THB is down 4.8%, while PHP and KRW are each down 4.1%.

Oil Driven Pressure On Asian Fx

MUFG links the weakness to sensitivity in oil-importing Asian economies to energy costs and risk sentiment. It says broader stability in the region’s currencies would depend on geopolitical de-escalation and lower oil prices or lower US yields. The bank notes rising inflation risks across Asia due to energy prices and possible second-round effects on transport and food costs. It points to high food CPI weights of more than 30% in Thailand, India, Vietnam, and the Philippines. MUFG adds that signs such as a reopening of the Straits of Hormuz or a clearer route towards ending the conflict could prompt a reassessment. It also notes that resilience in CNY is helping to steady the region. We maintain a defensive outlook on Asian currencies because of the ongoing uncertainty from the US-Iran conflict. The situation is keeping external pressures high, supporting the U.S. dollar. This environment makes it prudent to hedge against further weakness in oil-importing Asian economies.

Trading Positioning And Hedges

The impact is clear in the energy and bond markets, with Brent crude futures holding firm near $115 per barrel, according to recent EIA reports. This has helped push the U.S. 10-year Treasury yield to 4.85%, as inflation concerns keep the Federal Reserve from signaling any rate cuts. A strong dollar is the natural result of these higher yields and safe-haven demand. Currencies highly sensitive to oil prices have been hit hard since the conflict escalated in late 2025. The Korean Won is trading near 1450 against the dollar, a level not seen consistently since the 2008 financial crisis. Similarly, the Thai Baht and Philippine Peso are down over 4% since the year began, reflecting their vulnerability. For traders, this suggests positioning for continued strength in the U.S. dollar against these currencies. Buying USD call options against a basket of KRW, THB, and PHP offers a way to profit from further downside with a defined risk. This strategy aligns with the view that external pressures will remain the dominant driver in the coming weeks. Inflation data from the region confirms these risks, with the latest Philippine Statistics Authority report showing March inflation accelerating to 5.2% year-over-year. This price pressure, driven by energy and food costs, limits the ability of Asian central banks to support their economies with monetary easing. This creates a difficult backdrop for their respective currencies. Given the elevated tension around the Strait of Hormuz, maintaining long positions in oil derivatives is a logical hedge. Call options on WTI or Brent can provide upside exposure if energy flows are further disrupted. The pattern of energy shocks leading to global economic slowdowns, similar to what we saw in the 1970s, is a historical risk worth considering. The Chinese Yuan remains a relative anchor of stability in the region. One potential strategy is a pair trade, such as going long the offshore Yuan (CNH) against the Korean Won (KRW). This position isolates the Yuan’s managed resilience from the Won’s greater sensitivity to global risk sentiment and energy prices. We will continue to monitor any signs of credible de-escalation, as this would be the primary catalyst to change our defensive stance. Until there is a clear normalization of energy transit or a diplomatic breakthrough, the path of least resistance for these vulnerable Asian currencies is likely lower. Create your live VT Markets account and start trading now.

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