MUFG economists Lin Li, Michael Wan, Lloyd Chan, and Khang Sek Lee have analyzed the potential impact of the Strait of Hormuz situation on Asian foreign exchange markets. Their base case scenario anticipates the reopening of the Strait by the end of May, which would ease pressures on Asian currencies. In this scenario, Asian economic growth is expected to soften slightly in the near term but stabilize in the second half of 2026, as declining energy prices alleviate the drag on current accounts, corporate margins, and real income. Inflation is projected to remain largely contained, allowing most central banks in the region to maintain neutral-accommodative monetary stances [1].
The economists note that the Iran war has exerted significant pressure on Asia’s net energy-importing currencies, specifically highlighting the Philippine peso (PHP), Indian rupee (INR), Thai baht (THB), and Indonesian rupiah (IDR), which have depreciated the most against the US dollar since late February. However, even with the anticipated reopening of the Strait and a decline in oil prices, MUFG expects a divergent performance across Asian currencies rather than a unanimous rebound for the remainder of Q2 2026 [1].
In an adverse scenario where the Strait of Hormuz remains blocked, MUFG warns of higher energy costs, worsening terms of trade, increased pressure on trade balances, and intensified supply shortages. These factors would negatively impact industrial activity and the broader economy. A prolonged blockade could raise the risk of recessions in Asian economies, trigger capital outflows, and create significant pressure on regional currencies. In a severe scenario, MUFG projects a broad-based depreciation among Asian currencies: the South Korean won (KRW) could depreciate by more than 8%, the INR and PHP by more than 5%, and the Chinese yuan (CNY) by a relatively mild 3% against the dollar [1].
CONCLUSION
MUFG's analysis highlights the critical role of the Strait of Hormuz in shaping the outlook for Asian currencies. While a resolution by end-May could stabilize markets, a prolonged disruption poses significant downside risks, including broad-based currency depreciation and potential recessions in Asia. Market participants should closely monitor developments in the region for further guidance.