U.S.-Iran Tensions Rise; Nomura Downgrades Confidence in Short Asian FX Positions

Overview

This is a global macro strategy weekly report published by Nomura Securities on May 22, 2026, assessing the impact of ongoing geopolitical risks—particularly the war-and-negotiation deadlock between the U.S. and Iran over the Strait of Hormuz—on foreign exchange and interest rate markets. The report’s core conclusion is that the near-term trajectory of this situation is highly uncertain: on one hand, the Trump administration has threatened a 'major' strike against Iran; on the other, signals suggest negotiations have entered their 'final stage.' Consequently, Nomura strategically downgrades confidence across its high-conviction short-currency trades (primarily targeting South and Southeast Asian currencies) that had been maintained for several weeks, while also adjusting multiple interest rate positions to prepare for potential two-way volatility.

Core views

At the geopolitical level, the report identifies two diametrically opposed near-term scenarios for U.S.-Iran relations. First, escalation risk: Trump has threatened imminent 'major' strikes against Iran; Iran’s Revolutionary Guard has responded forcefully. Concurrently, Iran’s discussion of establishing a permanent toll system in the Strait of Hormuz and insistence on retaining enriched uranium may further inflame tensions. Should the U.S. launch another strike, oil prices would surge, boosting the U.S. dollar and exerting pressure especially on South and Southeast Asian currencies. Second, de-escalation opportunity: Trump states negotiations are in their 'final stage,' and Iranian media reports the U.S.’s new proposal has 'narrowed differences to some extent.' If an agreement to reopen the Strait is reached, the dollar could weaken significantly in the near term—especially benefiting currencies of energy-importing countries. Given this high uncertainty, Nomura systematically adjusts its FX strategy. For Asian currencies, confidence in long SGD/IDR is reduced from the highest 5/5 to 4/5, with the target unchanged at 14,200; confidence in long EUR/INR and long EUR/PHP is lowered from 4/5 to 3/5, citing stronger recent intervention efforts and hawkish signals from the Reserve Bank of India and Bangko Sentral ng Pilipinas—but the report still maintains a bearish view on these currencies and details structural bearish rationales, including Indonesia’s deteriorating fiscal position, India’s widening trade deficit, and the Philippines’ shrinking remittance inflows. The only Asian currency position retaining its original confidence level is short USD/CNH, supported by CNH’s resilience amid geopolitical stress, robust exporter FX conversion demand, and relatively positive capital inflows. For G10 currencies, long CHF/JPY stands out as the top trade, with high 4/5 confidence. Core logic includes the transient effect of yen-buying intervention and seasonal support for the Swiss franc; however, the report cautions about actual Japanese Ministry of Finance intervention during periods of thin liquidity (e.g., next Monday, when UK and U.S. markets are closed for holidays). Confidence in long EUR/GBP is lowered to 3/5 due to insufficient GBP weakness despite elevated UK political risks. A new long USD/CAD position is initiated with 3/5 confidence, justified by diverging U.S.-Canada inflation trajectories, excessive market pricing of Bank of Canada hikes, and risks surrounding USMCA trade negotiations. For Asian interest rates, Korean strategy sees a major adjustment: flatting out front-end (Dec-1y) receiver positions and shifting to a long 2-year-into-2-year (2y2y) receiver position, with confidence raised to 4/5. Rationale includes excessive market pricing of Korea’s policy rate hikes and declining supply of long-dated government bonds. For RMB rates, the report maintains a 3-year NDIRS payer position, reasoning that PBOC tightening of medium-to-long-term liquidity will lift funding costs. Indian rates remain bearish due to the likelihood of RBI hikes to defend the rupee, with continued expectation of yield curve flattening.

Analysis framework

This report employs a 'geopolitical scenario analysis'-driven 'multi-asset strategy adaptation' framework. The institution first anchors its macro focus on the single largest source of uncertainty—the U.S.-Iran conflict—and constructs two core scenarios—'escalation' and 'de-escalation'—by synthesizing the latest official statements and events. It then models each scenario’s implications for oil prices, the U.S. Dollar Index (DXY), and differential impacts across economy types (energy exporters vs. importers). This reflects a classic top-down logic: geopolitical event → core commodity price (oil) → inflation & balance-of-payments (BoP) pressure → monetary policy expectations → FX and rate moves. Building on this, Nomura applies 'relative value' and 'carry trade' lenses to construct specific FX trades. For example, long SGD/IDR and long EUR/INR essentially bet on divergence between safe-haven capital inflows and BoP pressures faced by energy-importing countries. In long USD/CAD, an implicit 'interest rate differential' analytical framework compares forward-pricing of future policy paths in the two countries. For interest rate strategies—such as receiving in Korea’s 2y2y—the report reflects a 'policy rate terminal value' versus 'current market forward pricing' arbitrage: markets may overestimate both the magnitude and duration of the hiking cycle. Liquidity analysis—e.g., the PBOC’s net liquidity withdrawal and its impact on repo rates—is also used as a key input for short-term trading decisions. Across all markets, the report evaluates each based on unique macro fundamentals, policy responses, and positioning to determine whether to maintain, downgrade, or close individual strategies.

Methodology notes

• Cycle and Business Conditions FrameworkTurning Point Analysis

  Geopolitical events as the primary driver of macro scenario analysis

  The report treats U.S.-Iran conflict as the single greatest source of uncertainty, constructing 'escalation' and 'de-escalation' scenarios and separately modeling their effects on oil prices, the U.S. dollar, national current accounts, and monetary policy. This scenario-based approach helps investors clarify the market implications of different potential paths amid complexity.

• Industry/sector Analysis FrameworkVolume-price decomposition

  Crude oil price as the central transmission variable

  The report’s analytical chain hinges heavily on oil prices: escalation → oil price surge → worsening current accounts for energy importers → currency depreciation pressure. Conversely, de-escalation → lower oil prices → benefits for energy-importing currencies. This underscores the central transmission role of commodity prices in macro trading.

• Fixed Income and Credit AnalysisYield Spread Analysis

  Discrepancy between interest rate pricing and policy expectations

  In both long USD/CAD and Korea’s 2y2y receiver position, the report argues markets have 'overpriced' central bank (Bank of Canada, Bank of Korea) hiking magnitudes. This involves comparing implied forward rates with analysts’ estimates of reasonable terminal policy rates to capture market correction gains.

• Financial Sector-Specific FrameworkNet Interest Margin (NIM) Analysis

  Effectiveness of monetary policy transmission

  When analyzing the Indonesian rupiah, the report notes that even aggressive BI rate hikes may fail to boost the currency if local banks do not pass through higher lending rates—a sign of friction in transmitting macro policy to the real economy.

• Corporate Fundamentals and Financial FrameworkFree cash flow analysis

  Balance-of-Payments (BoP) pressure analysis

  The report frequently uses current account deficits, trade deficits, and foreign portfolio outflows to gauge a currency’s underlying supply-demand fundamentals. Effectively, it treats a country as a 'corporation' whose FX cash flow is assessed—persistent current account deficits imply sustained depletion of foreign reserves.

• Event-Based Game Theory and Behavioral FinanceExpectation Gap / Expectation Management

  Assessment of official intervention effectiveness

  In analyzing the yen and Swiss franc, the report distinguishes between 'verbal intervention' and 'actual buying intervention', judging that once intervention ceases, its impact will be short-lived. This reflects analysis of the difference between market expectations of official behavior and the actual efficacy of such actions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Singapore Dollar/Indonesian Rupiah (SGD/IDR)

  Benefit Logic: Long SGD (safe haven, strong economy) vs. IDR (energy importer, deteriorating fiscal position, central bank credibility risk).

  Strengths

  Singapore: Strong economy, exports and industrial production exceeding expectations, rising core inflation, and expected MAS tightening.

  Weaknesses

  Indonesia: Fiscal deficit at 12-year high, questionable transmission of BI rate hikes, central bank independence challenged by government, and seasonal pressure from foreign outflows and dividend repatriation.

  Comparison

  Shares the short-Asian-energy-importer-currency theme with INR and PHP, but IDR faces greater structural policy risks—hence previously assigned highest trade confidence.

  Risks

  A U.S.-Iran agreement would rapidly ease Indonesia’s external payment pressures, posing the largest risk to this position.

• Euro/Indian Rupee (EUR/INR)

  Benefit Logic: Long EUR vs. INR, betting on India’s widening trade deficit and capital outflows amid high oil prices.

  Strengths

  INR Bear Case: Deteriorating trade deficit; projected current account deficit to widen to 2.4% of GDP.

  Weaknesses

  RBI is actively intervening in FX markets and considering rate hikes, which may delay rupee depreciation.

  Comparison

  Compared to IDR, RBI’s stronger intervention makes this trade less confident.

  Risks

  RBI may effectively stabilize the rupee via emergency hikes and aggressive USD sales.

• U.S. Dollar/Offshore RMB (USD/CNH)

  Benefit Logic: Short USD/CNH, favoring CNH’s relative strength and upside potential amid turmoil.

  Strengths

  RMB: Strengthens against USD amid geopolitical stress; robust exporter FX conversion demand; improving U.S.-China relations outlook; attracting capital inflows.

  Weaknesses

  If the U.S.-Iran conflict escalates sharply, broad-based dollar strength could impede RMB appreciation.

  Comparison

  The sole USD-short position in Asia retaining original confidence—underscoring its safe-haven status.

  Risks

  Sharp U.S.-Iran escalation triggering global risk aversion and broad dollar strength.

• Swiss Franc/Japanese Yen (CHF/JPY)

  Benefit Logic: Long CHF vs. JPY, given Japan’s temporary intervention effect and seasonal/energy-price support for CHF.

  Strengths

  CHF: Seasonal fund flows supportive of CHF performance in May–June; SNB tolerance for CHF strength remains relatively high.

  Weaknesses

  JPY: Faces firm intervention threat from Japan’s MOF; yet rising market expectations of a June BOJ hike limit downside.

  Comparison

  Among G10 pairs, this is Nomura’s highest-confidence trade, as its logic is not unilaterally dependent on U.S.-Iran developments.

  Risks

  Large-scale, decisive MOF yen-buying intervention; or SNB action to curb CHF strength.

• U.S. Dollar/Canadian Dollar (USD/CAD)

  Benefit Logic: New long position, betting on diverging U.S.-Canada inflation and policy paths, plus USMCA negotiation uncertainty weighing on CAD.

  Strengths

  USD/CAD Bullish: U.S. inflation resilience may force Fed to stay hawkish, while BoC hike pricing appears excessive.

  Weaknesses

  De-escalation could lower oil prices and lift risk sentiment—supporting CAD.

  Comparison

  Unlike EUR/GBP and other G10 trades, this emphasizes distinct North American policy divergence logic.

  Risks

  U.S.-Iran agreement driving oil price decline and risk sentiment recovery; unexpected Fed dovish pivot.

Key data

• SGD/IDR Trade Target14,200Targeted for end-August; total return expectation ~9%; confidence downgraded from 5/5 to 4/5.
• Indonesia April Fiscal Deficit-IDR 164.4 trillion (~USD 9.3 billion)Largest in past 12 years; 12-year average deficit was only IDR 23.3 trillion.
• India April Trade DeficitUSD 28.4 billionMarkedly worse than March’s USD 20.7 billion and above consensus of USD 26.0 billion.
• Philippine Labor Outflow to Gulf CountriesDown 78% YoY (March 2026)Nearly 5,000 Filipino workers repatriated from Gulf states, severely impacting remittance income.
• CNH vs. USD PerformanceDXY rose 1.7%, yet USD/CNH fell 0.9%Since late February (outbreak of Iran war), offshore RMB has shown notable resilience and relative strength.
• Korea 2y2y NDIRS Receiver Target3.75% (vs. current 4.09%)New position, 4/5 confidence, target to be reached by end-June; rationale: excessive market pricing of BOK hikes.

Impact & implications

The report concludes that under the current persistent geopolitical impasse, the dominant market narrative remains 'higher inflation / lower growth / BoP stress,' supporting broad dollar buying—especially against currencies of economies highly dependent on energy imports. Upcoming key inflation data—including U.S. core PCE and Australian CPI—will serve as critical tests of upside inflation risks. Across markets, central banks with weaker credibility (e.g., Bank Indonesia) may see limited currency appreciation even after aggressive rate hikes, due to poor policy transmission or questions about independence. Conversely, currencies of fundamentally strong, hawkish-central-bank economies (e.g., Singapore dollar, offshore RMB) are exhibiting safe-haven properties. The report also implies that divergent monetary policy paths—for instance, the Bank of Canada possibly needing fewer hikes than priced—will generate new carry-trade opportunities.

Risks

• A near-term U.S.-Iran agreement reopening the Strait of Hormuz could cause rapid dollar weakness, inflicting severe losses on short Asian currency positions.
• Reserve Bank of India and Bangko Sentral ng Pilipinas deploy unexpectedly strong intervention measures—including emergency rate hikes or large-scale offshore liquidity absorption—to stabilize their currencies.
• Japan’s Ministry of Finance conducts large-scale, decisive yen-buying intervention during thin liquidity (e.g., Monday, when UK and U.S. markets are closed), causing losses on yen-short G10 positions.
• Upcoming inflation prints (e.g., U.S. PCE, Australia CPI) surprise significantly to the downside—undermining the core 'inflation pressure → central bank hawkishness' trade thesis.

What to watch

• Whether a U.S.-Iran agreement on reopening the Strait of Hormuz emerges within the next two weeks—the single most critical variable affecting all FX and rate strategies.
• A wave of key inflation releases next week: U.S. April core PCE (May 28), Australia April CPI (May 27), Tokyo May CPI (May 29), and CPI readings across multiple European countries (May 29).
• The Bank of Korea’s policy meeting next Thursday—including guidance on future hiking paths—to validate the current rate strategy.
• RBI Governor’s speech on May 28 and bond auction results as key signals for whether the RBI will hike to defend the rupee.
• Australia and New Zealand developments: impact of Australia’s federal budget (next Thursday) on NZD, and whether the RBNZ meeting (next Thursday) delivers hawkish signals.