- Asian currencies showed divergence before and after the Middle East war
- Currencies with trade surpluses or supportive policies appreciated pre-war
- Oil importers faced depreciation due to higher energy costs and capital outflows
Geography mattered a lot for currencies in the last few weeks. Asia depends on the Middle East and the Strait of Hormuz for its oil and gas needs. Disruptions in the region push up energy prices, making transportation, fertilisers, plastics, and ceramics more expensive. The impact goes beyond inflation. Current account balances (exports minus imports) worsen, foreign investors pull back, and governments often step in with higher subsidies.
In most cases, this should weaken currencies, especially when the US dollar is strengthening. But the data tells a more uneven story. Currencies are moving in different directions. Those who were strong before the war largely stayed strong, while the weaker ones came under more pressure. That raises a simple question: were these trends created by the war, or were they already in motion?
Asian currencies are showing divergence
Photo Credit: Chart by Swapnil Karkare
How the currencies fared before the war
Let's rewind to Feb. 27, one day before the war. The split is already visible.
On one side:
Malaysia (+12% YoY), Israel (+12%), Russia (11%), Thailand (+8%), Singapore (+6%), China (+6%), and Taiwan (+4%) have all appreciated.
On the other:
India (-5%), Sri Lanka (-5%), Japan (-5%), Indonesia (-2%), Vietnam (-2%), and Korea (-0.4%) are already weakening.
This split reflects underlying economic positions.
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Why were certain currencies appreciating before the war?
Most of the appreciating currencies had either trade/current account surpluses or a policy supporting the exchange rate.
Take Malaysia. 'China+1' strategies worked in its favour as global firms shifted supply chains and capital into the country. That created steady demand for the ringgit (MYR). At the same time, the interest rate gap between Malaysia and the US narrowed, supporting the currency's appreciation.
The Taiwan dollar (TWD) gained from the semiconductor export boom, while the Thai baht (THB) benefited from improving political stability and a recovery in tourism.
The yuan's (CNY) appreciation was intentional and supported by the Chinese central bank (PBOC), with rising trade surpluses strengthening it. Singapore followed a similar policy-led approach. The Monetary Authority of Singapore uses currency strength as a tool to manage inflation, supporting the Singapore dollar (SGD).
Israel, despite the war in Gaza, saw support from high-tech exports, gas revenues, and large foreign exchange reserves of around 40% of GDP.
Why were other currencies depreciating before the war?
The Indian rupee (INR) saw one of its toughest phases. In 2025, INR depreciated by more than 5%, FPIs sold $18 billion worth of Indian equities, and interest rates hardened despite lower inflation. India has a limited exposure to global AI-led growth themes, while US tariffs of 25-50% restricted export growth.
The RBI also reduced the intensity of its forex intervention compared to earlier years, allowing the rupee to adjust more freely. Put together, tariffs, deficits and weaker capital support added more pressure on the rupee.Japan, on the other hand, raised rates, but not enough to close the gap with the US, so the yen (JPY) remained the funding currency.
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Rising concerns over fiscal sustainability and policy unpredictability unsettled foreign investors, leading to bond outflows in Indonesia. At the same time, US tariffs and softer commodity prices, especially coal, reduced export support, leading to a weaker rupiah (IDR).
Why does post-war appreciation continue?
The post-war period reveals two distinct mechanisms for explaining why certain currencies held up. The first is a direct commodity windfall. Kazakhstan's post-war move (+7.0%) is almost entirely oil-price-driven. Higher oil prices improved Kazakhstan's terms of trade. We can see a similar trend with Israel's shekel.
The second mechanism is the pre-war cushion. The Malaysian ringgit had a strong run before the war. When the war hit, and risk sentiment turned negative, it depreciated, but the earlier appreciation was deep enough to offset the new blow. The same applies to Thailand, Singapore, and Taiwan.
As one of the world's largest oil importers, China should have seen pressure on its currency after the shock. Three factors kept the yuan firm. First, it is tightly managed by the PBOC. China also entered the shock with a strong external position, with exports generating steady dollar inflows. Large energy buffers reduced short-term vulnerability.
Why did depreciating currencies keep depreciating more post-war?
We saw continuous drag on INR, JPY, PHP, KRW, and IDR post-war due to one major factor. They are all major net oil importers with near-total Hormuz exposure. Higher oil prices worsened trade balances, while risk-off conditions pulled capital out.
Final Take
At a basic level, the post-war currency trends look like a continuation of the pre-war trajectory. The energy shock and stronger dollar didn't change direction; they accelerated it.
That's why the divergence persists. Unless the underlying factors such as geopolitical stability, oil dependence, capital flows, and policy stance shift meaningfully, these currency trends are unlikely to reverse anytime soon.
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