Rising U.S.-Iran Uncertainty Leads Nomura to Cut Conviction on Multiple FX Trades
AI summary card
Rising U.S.-Iran Uncertainty Leads Nomura to Cut Conviction on Multiple FX Trades
The report says that negotiations related to the Strait of Hormuz and potential military escalation could trigger sharp moves in oil, the dollar, and FX in energy-importing countries, so it keeps a bearish directional bias on South and Southeast Asian FX but lowers conviction on several trades.
- SGD/IDR conviction was cut from 5/5 to 4/5, but the target remains 14,200 by end-August 2026, with Indonesia's fiscal position, current account, central bank independence, and capital outflow pressure still seen as supporting IDR underperformance.
- Conviction on both EUR/INR and EUR/PHP was reduced from 4/5 to 3/5 due to the possibility of a U.S.-Iran deal and the risk of intervention or rate hikes by the Indian and Philippine central banks, although the report remains bearish on INR and PHP fundamentals.
- Among G10 FX, the long CHF/JPY trade remains one of the highest-conviction trades at 4/5; the report also initiates a long USD/CAD trade at 3/5, citing U.S.-Canada front-end rate divergence, demand for Canadian assets, and USMCA negotiation risk.
- In Asia rates, Korea switches from receiving Dec-1y NDIRS to receiving 2y2y NDIRS and conviction is raised to 4/5; China keeps paying Jun-3y NDIRS at 3/5.
- In Australia rates, the report takes profit on the receiving 3m1y position after the employment data, cuts conviction to 0/5, and watches whether next week's Australian CPI comes in above consensus.
Report interpretation
Overview
This is a Nomura global markets macro strategy report centered on the impact of the U.S.-Iran conflict and the prospect of reopening the Strait of Hormuz on FX, oil, and Asia rates. The report says near-term uncertainty has increased materially: on one hand, the U.S. could strike Iran again and push up oil and the dollar; on the other, if negotiations progress, energy-importing FX and risk assets could rebound. As a result, the report does not fully reverse the original trade direction, but instead lowers conviction on most FX trades while retaining views on several structural fundamental pressures.
Core views
The report's core views are: first, the U.S.-Iran situation is the dominant driver of global FX and rates in the near term, and any agreement to reopen the Strait of Hormuz could weaken the dollar, especially versus energy-importing FX; second, if the conflict escalates or the stalemate persists, oil prices, inflation, growth slowdown, and balance-of-payments pressure will continue to support the dollar, particularly hurting South and Southeast Asian FX; third, SGD still has relative advantages versus IDR, CNH versus USD, and CHF versus JPY; fourth, conviction is raised on Korean receive-rate positions, while Australian short-end receive positions have been taken off; fifth, the report overall emphasizes lower conviction, keeping directional preferences, and waiting for confirmation from Middle East developments and inflation data.
Analysis framework
The report uses a scenario-analysis and relative-value trading framework, dividing the U.S.-Iran conflict into three paths: escalation, de-escalation, and stalemate, and evaluates their impact on oil, the dollar, energy-importing FX, central bank policy expectations, and the yield curve. At the trade level, it adjusts conviction by combining balance-of-payments, fiscal position, central bank reaction functions, capital flows, inflation data, rate differentials, positioning, and political risk.
Methodology notes
Use geopolitical paths to infer the direction of oil, the dollar, and energy-importing FX.
The report argues that escalation will push up oil and strengthen the dollar, especially hurting South and Southeast Asian FX; if a Strait of Hormuz reopening deal emerges, the dollar could weaken first and energy-importing FX could rebound.
Use scores from 1/5 to 5/5 to indicate trade size and conviction.
The report explains that 1 means observation, 3 means about one-third of target size, 4 means about two-thirds of target size, and 5 means the full target size; this period saw several trades cut from 4 or 5 down to 3 or 4.
Compare currencies based on fiscal position, current account, central bank policy, capital flows, and geopolitical risk.
For example, the report explains IDR underperformance through Indonesia's fiscal deficit, BI transmission, FDI risk, and equity/bond outflows, and SGD outperformance through Singapore's exports, GDP, and inflation resilience.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- SGD/IDRLong SGD, short IDR
- Strengths
- Singapore's exports and industrial production are strong, inflation pressure is rising, and MAS may still steepen the S$NEER slope.
- Weaknesses
- If the U.S.-Iran sides reach a deal, the market may reassess the negative impact of war risk on Indonesia's balance of payments, which would pressure the position in the short term.
- Comparison
- The report views SGD fundamentals as more resilient than IDR, with IDR facing fiscal, central-bank transmission, capital outflow, and rating outlook risks.
- Risks
- U.S.-Iran de-escalation, unexpectedly supportive Indonesian policy, and lower oil prices easing energy-import pressure.
- EUR/INRLong EUR, short INR
- Strengths
- A wider Indian trade deficit, current-account pressure, and foreign outflows support INR underperformance.
- Weaknesses
- The RBI is stepping up efforts to stabilize INR, including FX intervention and possible use of policy tools.
- Comparison
- Compared with EUR, INR is more sensitive to oil prices and balance-of-payments pressure.
- Risks
- Strong RBI intervention, a U.S.-Iran deal that lowers oil prices, and broad dollar weakness leading to INR recovery.
- EUR/PHPLong EUR, short PHP
- Strengths
- The Philippines faces negative remittance, balance-of-payments, and political uncertainty, while BSP intervention is more about smoothing volatility than reversing the trend.
- Weaknesses
- The BSP may respond more aggressively to inflation, and a U.S.-Iran deal could improve expectations for overseas worker remittances.
- Comparison
- PHP is more exposed than EUR to remittance, political, and external funding pressures.
- Risks
- A stronger-than-expected BSP hike or intervention, improved remittances, and easing political risk.
- USD/CNHShort USD/CNH, i.e. long CNH
- Strengths
- CNH has already been relatively strong during the Middle East stalemate, and corporate conversion, trade surplus, the RMB basket, and ETF inflows provide support.
- Weaknesses
- If the dollar strengthens broadly on conflict escalation, the downside in USD/CNH may temporarily slow.
- Comparison
- CNH is less sensitive to DXY upside and more sensitive to DXY downside.
- Risks
- Broad dollar strength, reversal in capital inflows, and renewed deterioration in U.S.-China relations.
- CHF/JPYLong CHF, short JPY
- Strengths
- Middle East risk and higher oil prices support the safe-haven and energy-shock logic, while the Bank of Japan is unlikely to significantly exceed market hawkish expectations.
- Weaknesses
- USD/JPY near or above 160 could raise the risk of actual intervention by the Ministry of Finance.
- Comparison
- The report prefers expressing JPY shorts in non-USD cross rates rather than chasing USD/JPY directly higher.
- Risks
- Japanese intervention, a more hawkish-than-expected BOJ, and easing Middle East tensions reducing demand for CHF.
- USD/CADLong USD, short CAD
- Strengths
- U.S.-Canada rate differentials may continue to support USD, Fed hike pricing may extend, and Canadian investors may keep demanding U.S. assets.
- Weaknesses
- If a U.S.-Iran deal improves risk sentiment, CAD may benefit in the short term.
- Comparison
- The report believes USD/CAD has not fully reflected the rise in U.S.-Canada front-end rate differentials.
- Risks
- Oil prices or risk sentiment supporting CAD, smooth USMCA talks, and stronger-than-expected Canadian data.
- Korea 2y2y NDIRSReceive rates
- Strengths
- The report thinks the market is overpricing the BOK meeting, inflation expectations remain anchored, and June long KTB issuance is lower.
- Weaknesses
- Global inflation and oil risks could push yields higher.
- Comparison
- The report switched from Dec-1y to 2y2y to better express the view that Korean rates should fall.
- Risks
- A more hawkish-than-expected BOK, oil-driven inflation expectations, and further global rate increases.
- Australia 3m1y ratesExited the receive position
- Strengths
- Earlier weak employment and PMI data supported outperformance in Australian rates.
- Weaknesses
- Market pricing is now close to the report's base case, so the risk-reward of holding the trade has declined.
- Comparison
- The report cut conviction to 0/5 and is waiting for new data such as Australian CPI.
- Risks
- Australian CPI above expectations, a renewed hawkish turn by the RBA, and continued strength in U.S. data.
Key data
- SGD/IDR trade conviction4/5, target 14,200, expected total return of about 9%, through end-August 2026Conviction was cut from 5/5, mainly because U.S.-Iran negotiations may make progress.
- EUR/INR trade conviction3/5, target 113, expected return of about 5%, stop-loss 111, through end-August 2026Conviction was cut from 4/5 because of stronger efforts by the RBI to stabilize INR.
- EUR/PHP trade conviction3/5, target 73.5, expected return of about 4%, stop-loss 71.5, through end-July 2026Conviction was cut from 4/5, but the report still sees Philippines balance-of-payments, remittance, and political risks as negative.
- USD/CNH tradeMaintain the short USD/CNH position, conviction 3/5, target 6.60, expected return of about 3%, through end-August 2026The report sees corporate conversion of FX earnings, RMB basket performance, and foreign inflows as supporting CNH outperformance.
- CHF/JPY tradeMaintain the long CHF/JPY position, target 206, conviction 4/5Oil prices and Middle East risks support the trade, but watch for intervention risk by Japanese authorities.
- USD/CAD tradeNew long USD/CAD trade, conviction 3/5, target return of about 3%Reasons include U.S.-Canada front-end rate differentials, Fed rate-hike pricing, Canadian investor demand for U.S. assets, and USMCA negotiation risk.
- Korea rates tradeSwitched from receiving Dec-1y NDIRS to receiving 2y2y NDIRS, conviction raised to 4/5The report believes the market is pricing the BOK meeting too aggressively, inflation expectations remain contained, and June long KTB issuance is lower.
- Australia rates tradeReceive 3m1y position taken off, entry 4.88%, exit 4.695%, conviction lowered to 0/5Rates rebounded after the employment data, and market pricing is now closer to the report's base case.
Impact & implications
For portfolios, the report suggests shifting from high-conviction, strongly directional FX positions toward more cautious relative-value expressions. U.S.-Iran news flow can significantly change short-term pricing in energy, the dollar, and Asia FX, so position management matters more than a single directional call. If the conflict escalates, the dollar, oil, and defensive or rate-spread trades such as CHF/JPY and USD/CAD could benefit; if the conflict cools, South and Southeast Asian FX shorts and some long-dollar trades could come under pressure.
Risks
- A U.S.-Iran military escalation could push up oil and the dollar, further pressuring FX in energy-importing countries.
- If the U.S. and Iran reach a Strait of Hormuz reopening deal, the dollar could weaken and existing Asia FX shorts could be hurt.
- Japanese authorities may intervene if USD/JPY approaches or breaks 160, affecting JPY cross trades.
- Asian central banks such as the RBI, BSP, and BI may use rate hikes, FX intervention, or liquidity tools to stabilize their currencies.
- If Australia, Tokyo, Europe, or U.S. inflation data come in above expectations, rates and FX trading paths could change.
- Positive progress in USMCA negotiations could weaken the logic for the long USD/CAD trade.
What to watch
- Whether the U.S. and Iran reach an agreement on reopening the Strait of Hormuz over the next two weeks.
- U.S. April core PCE, Australia April CPI, Tokyo May CPI, and Europe May inflation data.
- Whether USD/JPY clearly breaks 160 and whether Japan's Ministry of Finance issues verbal or actual intervention.
- Whether the RBNZ meeting can be more hawkish than the market's roughly 77 bp of rate cuts/hikes priced for the year.
- The BOK meeting, Korea's long KTB issuance, and changes in the Korean NDIRS curve.
- Indonesia's fiscal bill, BI independence debate, capital outflows, and S&P rating outlook risk.
- The Philippine Vice President Sara Duterte Senate trial and its impact on political risk and credit rating pressure.
- USMCA negotiation headlines and their impact on CAD and the outlook for Canadian investment.