MUFG’s Senior Currency Analyst Michael Wan highlights that Asian currencies have held up alongside a weaker Dollar despite renewed tensions around the fragile two-week ceasefire in the Middle East. He stresses that physical Oil flows through the Strait of Hormuz remain constrained and advises clients to stay cautious on risk and hedge exposure to vulnerable Asian Emerging Market currencies.

Ceasefire risks and EM Asia hedging

"The two-week ceasefire is barely a day old, and it seems there are already cracks forming, even as financial markets remained relatively buoyant with a weaker Dollar and stronger Asian currencies holding up as well so far."

"From our perspective, while financial markets are buoyant, what will matter ultimately is the physical market and whether the barrels will ultimately flow. On that front, although the traffic has improved in terms of number of ships leaving the Strait of Hormuz in part with tolls from Iran, the Oman route and diplomatic negotiations, the overall level of traffic remains far too low and still focused on ships/tankers leaving rather than ships/tankers entering the SoH right now."

"As such, we continue to advise taking a cautious stance on risk despite the current buoyancy in financial markets, and for our clients if possible to take opportunities to hedge some of positions at current better levels especially against more vulnerable Emerging Market currencies in our region such as INR, PHP, THB and KRW."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)