TD Securities reported that higher oil prices and falling inventory buffers are affecting Asian economies that rely on imported energy moving through the Straits of Hormuz. It said this can reduce growth and raise inflation across the region. The note estimated at least a ~1.0% hit to GDP and cited recession risk in energy-intensive economies such as South Korea and Thailand. It also said Asian central banks may focus on supporting growth, which could limit rate rises despite inflation pressure.

Asian Markets And Currency Implications

TD Securities said Asian currencies and equities remain under pressure, with the Korean won (KRW) and Indian rupee (INR) expected to underperform peers. It linked this to the energy terms-of-trade shock, a correction in USD positioning, faster portfolio outflows, and limited scope for rate increases. The note said the Singapore dollar (SGD) and Chinese yuan (CNY) may fare better, citing foreign exchange policies, reserves, and bond inflows. It also said a defensive preference for holding long USD positions is likely in the near term. A defensive bias towards the US dollar is warranted as the current situation mirrors the dual shock of high energy prices and slowing growth we observed in 2025. With Brent crude futures trading firmly above $90 a barrel, a familiar pressure is building on energy-importing nations in Asia. This backdrop reinforces the case for maintaining long dollar positions against more vulnerable regional currencies. The South Korean won is signaling significant weakness, a pattern we have seen before. South Korea’s latest inflation figures came in at 3.4%, yet the Bank of Korea is holding interest rates steady to avoid harming growth, creating a negative real yield environment. This policy divergence from a hawkish Federal Reserve makes shorting the KRW, perhaps through put options on KRW futures, a logical strategy.

Trade Setups For Dollar Strength

A similar dynamic is weighing on the Indian rupee, which has depreciated past the 83.50 mark against the dollar. India’s inflation remains elevated above 5%, but the central bank is prioritizing economic expansion, making rate hikes unlikely in the near term. This makes the rupee a prime candidate for weakness, and traders could consider buying USD/INR call options to capitalize on further declines. Conversely, the Singapore dollar and Chinese yuan are displaying resilience due to proactive policy and strong foreign reserve buffers. The Monetary Authority of Singapore’s consistent policy stance supports the SGD, while state-directed inflows have kept the CNY stable. These currencies are likely to outperform their regional peers, though they are not immune to broad dollar strength. For derivative traders, this environment suggests setting up trades that benefit from a strong dollar, particularly against the won and rupee. One could structure a currency basket, going long the USD against a short position in an equally weighted basket of KRW and INR. Alternatively, relative value trades, like being long the Singapore dollar against the Korean won (SGD/KRW), could isolate regional weakness while hedging some overall market risk. Create your live VT Markets account and start trading now.

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