Asian FX Volatility: Geopolitical Tensions Drive Market Setback and Complex Two-Way Trade Patterns

OCBC Treasury Research warns that geopolitical tensions are driving heightened volatility across Asian FX markets, with major regional currencies underperforming against the US dollar and correlations breaking down. The Japanese yen has weakened despite safe-haven status, while the Chinese yuan, Indian rupee and Southeast Asian currencies show divergent moves tied to trade shifts and political risk. The MSCI Asian Currency Index is down about 2.3% YTD (March 2025), prompting more frequent central-bank interventions and higher hedging costs. OCBC highlights “two-way trade dynamics” as new trade relationships form and old corridors are disrupted, creating both risks (wider bid-ask spreads, inflationary import pressures) and trading opportunities for active participants.