Asia FX faces divergent paths under Hormuz Strait scenarios: MUFG

MUFG’s client note outlines divergent FX outcomes for Asia depending on developments in the Strait of Hormuz, highlighting material market impact risks. A prolonged disruption would raise oil prices and hit oil-importing Asian currencies (notably the Indian rupee, Japanese yen vulnerable as trade balances deteriorate), while oil exporters (Indonesia, Malaysia) could see currency support. Under a benign diplomatic resolution, MUFG expects stabilisation with the Chinese yuan and Singapore dollar benefiting. The bank warns markets may be underpricing the risk, noting rising tanker insurance rates and potential second-round effects: importers could be forced into tighter policy to defend currencies, slowing growth, while export-oriented economies could suffer from higher input costs and weaker demand. Traders are urged to differentiate hedges by net oil exposure and reserve adequacy rather than using a one-size-fits-all FX approach.