MUFG economists Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee outline a base case where the reopening of the Strait of Hormuz by end‑May eases pressures on Asian currencies. They see Asia growth softening near term but stabilizing in H2 2026, with inflation contained and most central banks keeping neutral‑accommodative stances. They also sketch an adverse scenario with broad Asia FX depreciation.
Base and adverse scenarios for Asia FX
“A base case, where the Iran war and the Hormuz disruption unwind approaching end of May, is our core case. Asia growth softens slightly in near term but stabilizes into 2H2026 as declining energy prices ease the drag on current account, corporate margins and real income. Inflation will remain largely contained and allows most central banks to maintain their neutral-accommodative stance.”
“Iran war has exerted significant pressure on Asia’s net energy‑importing currencies, with PHP, INR, THB and IDR depreciating most against the dollar since late February. However, in our base case, while reopening of the Strait of Hormuz and the associated decline in oil prices would unwind some pressures, we expect a divergent performance across Asian currencies, rather than a unanimous rebound in remaining Q2.”
“Under the Adverse Scenario transit the Strait of Hormuz, over time, higher energy costs would worsen the terms of trade, pressure on trade balance, and supply shortages would intensify and weigh on industrial activity and overall economy. A prolonged blockade of the Strait of Hormuz brings the risks of recessions for Asian economies, causing capital outflow, creating pressure for significant pressure. In the Severe scenario, we expect a broad base depreciation among Asian currencies, with some like KRW to depreciate more than 8%, and INR and PHP to depreciate more than 5%, and a relatively mild 3% depreciation for CNY against the dollar.”
Editorial note: This recovered market brief has been cleaned and reclassified by Next Move Markets for educational market intelligence. It is not investment advice.
Next Move Markets desk view
For active traders, this brief should be read through the lens of energy markets rather than as a standalone headline. The key question is whether the theme behind Asia FX: Divergent paths under Hormuz scenarios – MUFG can influence positioning beyond the first reaction. That means watching supply headlines, inventory data, OPEC policy, transport routes and geopolitical risk together, not in isolation.
A richer trading read comes from separating the catalyst from confirmation. The catalyst explains why markets are paying attention; confirmation comes from price action, liquidity and cross-asset behavior after the headline is digested. If those signals do not align, traders should treat the move as fragile and keep risk tighter.
What traders should watch next
- Whether the headline changes physical supply expectations or only short-term sentiment.
- How Brent and WTI react around recent technical ranges after the first volatility spike.
- Inventory data, OPEC communication and shipping-route risk that can confirm the theme.
- Currency moves and global growth expectations that may offset energy-specific catalysts.
Risk context
This article is a market-intelligence brief, not a trade recommendation. Before acting on the theme, traders should define invalidation, position size and the time horizon of the setup. The same headline can support a short-term reaction and still fail as a multi-session trend if liquidity, policy expectations or broader sentiment move the other way.
Scenario map
The base case is that traders keep this theme on the radar while waiting for confirmation from supply headlines, inventory data, OPEC policy, transport routes and geopolitical risk. A stronger continuation scenario requires follow-through after the first reaction, preferably with related assets moving in the same direction. A failure scenario develops if the headline is quickly absorbed, volatility fades and price returns inside the previous range.
For energy markets, the most useful approach is to compare the article theme with live market behavior. If the market confirms the narrative, pullbacks can become more constructive. If the market rejects it, the headline becomes background noise rather than a trading driver.
Execution discipline
- Define the level first: traders should know where the idea is invalidated before thinking about upside or downside.
- Separate news from setup: Asia FX: Divergent paths under Hormuz scenarios – MUFG may explain attention, but entry quality still depends on timing, liquidity and risk/reward.
- Watch confirmation: a clean move usually appears across related markets, not only in one isolated instrument.
- Control exposure: if volatility expands, smaller position sizing can be more professional than chasing the headline.
Next Move Markets treats this kind of brief as a starting point for preparation: identify the driver, map the scenarios, then wait for the market to prove which path is actually being priced.
