Asian currencies remain under pressure in a context of an energy shock linked to tensions around the Strait of Hormuz. In India, the RBI is now intervening aggressively to defend the rupee and ensure that the USD/INR exchange rate does not exceed the critical level of 100.
In Indonesia, the central bank has adopted the most hawkish monetary stance in the region after its surprise rate hike, while in South Korea the market is gradually abandoning the scenario of rapid rate cuts despite a status quo at 2.50%.
In China, Beijing is maintaining a growth-supportive policy while avoiding an disorderly depreciation of the yuan. Beyond oil, markets are now also monitoring freight costs, maritime insurance, and tensions in refined products and fertilizers.
But the rebound will eventually come, likely when normalization of maritime transport through the Strait of Hormuz begins. As for the Indian rupee (INR), the central bank will now do everything possible to stop the decline.
The table below shows the main Asian emerging currencies under pressure due to the geopolitical situation. Only the Chinese yuan remains in an uptrend.
The Indian rupee is currently one of the most exposed Asian currencies to the shock caused by geopolitical tensions in the Middle East. India is heavily dependent on energy imports indirectly transiting through the Strait of Hormuz, particularly crude oil, while rising shipping and insurance costs are gradually deteriorating the current account outlook. This energy dependence explains why the USD/INR pair is now under close surveillance by the Reserve Bank of India (RBI), India’s central bank.
The RBI clearly does not want to allow a lasting loss of confidence in the rupee. Over recent weeks, the central bank has repeatedly intervened in the FX market to slow the rise of USD/INR. The market now understands that a major psychological threshold exists around the 100 level on USD/INR. Beyond this level, there is a risk of accelerated capital outflows, higher imported inflation, and a loss of monetary credibility.
It is precisely to avoid this scenario that the RBI is gradually adopting a firmer tone. Even though the policy rate remains officially at 5.25%, the market is starting to price in the possibility of a much more hawkish monetary bias if energy tensions persist. The Indian central bank could therefore accept tighter financial conditions in order to defend its currency and limit the inflationary impact of rising commodity prices.
Another key element is the timing of the current shock. Tensions in oil, liquefied natural gas, refined products, and even fertilizers are directly linked to disruptions in maritime traffic through the Strait of Hormuz. Historically, however, Asian emerging currencies have often started to rebound before full normalization of trade flows, as soon as markets anticipate an improvement in logistics conditions.
The chart below shows the monthly and daily Japanese candlesticks of the USD/INR exchange rate.
This is likely the scenario the RBI is now trying to build: preventing a short-term panic in the rupee in order to preserve conditions for a future rebound of the INR once energy tensions begin to stabilize. If maritime traffic continues to gradually normalize in the coming weeks and oil prices stop accelerating, the Indian rupee could become attractive again against the US dollar.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
In Indonesia, the central bank has adopted the most hawkish monetary stance in the region after its surprise rate hike, while in South Korea the market is gradually abandoning the scenario of rapid rate cuts despite a status quo at 2.50%.
In China, Beijing is maintaining a growth-supportive policy while avoiding an disorderly depreciation of the yuan. Beyond oil, markets are now also monitoring freight costs, maritime insurance, and tensions in refined products and fertilizers.
But the rebound will eventually come, likely when normalization of maritime transport through the Strait of Hormuz begins. As for the Indian rupee (INR), the central bank will now do everything possible to stop the decline.
The table below shows the main Asian emerging currencies under pressure due to the geopolitical situation. Only the Chinese yuan remains in an uptrend.
The Indian rupee is currently one of the most exposed Asian currencies to the shock caused by geopolitical tensions in the Middle East. India is heavily dependent on energy imports indirectly transiting through the Strait of Hormuz, particularly crude oil, while rising shipping and insurance costs are gradually deteriorating the current account outlook. This energy dependence explains why the USD/INR pair is now under close surveillance by the Reserve Bank of India (RBI), India’s central bank.
The RBI clearly does not want to allow a lasting loss of confidence in the rupee. Over recent weeks, the central bank has repeatedly intervened in the FX market to slow the rise of USD/INR. The market now understands that a major psychological threshold exists around the 100 level on USD/INR. Beyond this level, there is a risk of accelerated capital outflows, higher imported inflation, and a loss of monetary credibility.
It is precisely to avoid this scenario that the RBI is gradually adopting a firmer tone. Even though the policy rate remains officially at 5.25%, the market is starting to price in the possibility of a much more hawkish monetary bias if energy tensions persist. The Indian central bank could therefore accept tighter financial conditions in order to defend its currency and limit the inflationary impact of rising commodity prices.
Another key element is the timing of the current shock. Tensions in oil, liquefied natural gas, refined products, and even fertilizers are directly linked to disruptions in maritime traffic through the Strait of Hormuz. Historically, however, Asian emerging currencies have often started to rebound before full normalization of trade flows, as soon as markets anticipate an improvement in logistics conditions.
The chart below shows the monthly and daily Japanese candlesticks of the USD/INR exchange rate.
This is likely the scenario the RBI is now trying to build: preventing a short-term panic in the rupee in order to preserve conditions for a future rebound of the INR once energy tensions begin to stabilize. If maritime traffic continues to gradually normalize in the coming weeks and oil prices stop accelerating, the Indian rupee could become attractive again against the US dollar.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.