OCBC strategists Sim Moh Siong and Christopher Wong expect Asian foreign exchange to start the week weaker. They link this to renewed geopolitical uncertainty, firmer crude prices, weaker risk appetite and demand for the US dollar.
They flag high-beta and net oil-importer currencies as more exposed, including KRW, THB, PHP and INR. They expect lower-beta currencies such as CNH and SGD to be more resilient.
Limited Hormuz Transit Resumes
They note that limited transit through the Strait of Hormuz has resumed. This may reduce the chance of markets pricing in the most severe disruption scenario, pointing to a softer open rather than a disorderly sell-off.
If conflict lasts and oil prices stay elevated rather than surge, they expect a move towards terms-of-trade differences. They prefer AUD over EUR and remain defensive on oil-importing Asian currencies, including KRW, INR, THB and PHP.
Given the recent rise in Brent crude to over $95 a barrel and the US Dollar Index pushing past 106.5, we expect a weaker start for many Asian currencies. This environment of geopolitical uncertainty is creating defensive demand for the dollar. We see this as a direct echo of the patterns observed during the Middle East tensions back in 2025.
Last year, we saw how high-beta, net oil importers like the Korean won and Thai baht underperformed significantly when oil prices became sticky. South Korea’s heavy reliance on energy imports, for instance, caused the won to weaken past 1,380 against the dollar during that period. Traders should consider buying puts on currencies like the KRW, THB, and INR to hedge against further downside in the coming weeks.
Favor Aud Over Eur
Conversely, we favor energy exporters like the Australian dollar, which benefits from higher commodity prices, especially when compared to energy-importing blocs like the Eurozone. Australia’s trade surplus just beat expectations last month, widening to A$12 billion on the back of strong LNG and coal exports. This reinforces our view to look at strategies like call spreads on AUD/EUR, anticipating further divergence.
The Chinese yuan and Singapore dollar should prove more resilient in this environment, much like they did in 2025. Singapore’s strong monetary framework and China’s managed currency regime provide a buffer against this type of external shock. These are not the currencies we would be looking to short right now.
The key is that oil prices seem sticky rather than spiking uncontrollably, as major shipping lanes remain open, albeit with higher insurance costs. This suggests a gradual grind rather than a market panic, making longer-dated options more attractive than short-term gambles. We will be watching headlines closely for any signs of de-escalation, which could be a trigger to take profits on these defensive positions.
