MUFG's note points to a straightforward transmission channel from the Middle East conflict into Asian currency markets: rising geopolitical risk premia and reduced Strait of Hormuz tanker flows (Strait of Hormuz transits fell to just four vessels on Sunday) are pushing Brent higher, and that in turn is weighing hardest on the currencies of net oil importers with existing external vulnerabilities, namely Thailand and India. The fact that both the baht and rupee weakened even as the DXY softened somewhat after June's inflation data underscores that this is an oil-specific and current-account-linked story rather than simple broad dollar strength. With Thailand's balance of payments already deteriorating, MUFG sees downside risks for the baht as dominant, and further gains in oil, which look likely if the Hormuz disruption persists, would extend the pressure on both currencies. The bigger picture for the dollar itself remains complicated by a Fed that may need to consider hiking if inflation does not cool, even as consumer sentiment data point to resilience, a combination that keeps a floor under the DXY and adds a second headwind for Asian currencies alongside the oil move.---Oil's rebound is finding its way into Asian FX, and the baht and rupee are feeling it first.Summary:MUFG currency analysts said in a research note that an oil price rebound could pressure Asian currencies, citing a rising geopolitical risk premium and reduced tanker flows through the Strait of HormuzThe Thai baht and Indian rupee are especially sensitive to the move and both fell about 1% against the US dollar last week, according to MUFGMUFG said downside risks for the baht remain dominant given Thailand's deteriorating balance of paymentsBrent crude has rebounded as geopolitical risk premia rise and Strait of Hormuz tanker traffic declinesUS Treasury yields have eased after softer June CPI and PPI data but remain above 4%, while the University of Michigan survey showed 1-year consumer inflation expectations moderated to 4.2% in July from 4.6%, with 5 to 10 year expectations steady at 3.3%The Federal Reserve's Vice Chair said the central bank should consider raising interest rates if inflation does not cool soonThe University of Michigan consumer sentiment index rose to 54.4 in July from 49.5 in June, beating consensus of 51.0A rebound in oil prices is starting to weigh on Asian currencies, according to MUFG, with the Thai baht and Indian rupee showing the greatest sensitivity to the move. In a research note, MUFG's currency analysts said the rebound in crude, driven by a rising geopolitical risk premium and declining tanker flows through the Strait of Hormuz, is feeding through into currency markets, and that both the baht and rupee fell about 1% against the US dollar last week as a result.MUFG said the weakness in both currencies was particularly notable given that the broader dollar index had softened somewhat following June's inflation data, underscoring how directly exposed the baht and rupee are to the oil move rather than to generic dollar strength. For the baht specifically, MUFG said downside risks remain dominant as Thailand's balance of payments continues to deteriorate, leaving the currency with less of a buffer to absorb the additional pressure from higher energy import costs.The oil rebound sits within a broader inflation picture that MUFG and other analysts see as skewed to the upside. Brent crude has climbed as geopolitical risk premia build and Hormuz tanker traffic declines, adding an energy-driven inflation impulse just as US data shows only a partial easing in price pressures. US Treasury yields have eased following softer June CPI and PPI releases but remain above 4%, and the University of Michigan survey showed 1-year consumer inflation expectations moderating to 4.2% year on year in July from 4.6% previously, though still elevated, while longer-term expectations held steady at 3.3%.Against that backdrop, the Federal Reserve's Vice Chair said the central bank should consider raising interest rates if inflation does not cool soon, a comment that has helped keep the dollar, as measured by the DXY index, firm this month despite some softening after the June inflation data. Adding to the picture, the University of Michigan's consumer sentiment index rose to 54.4 in July from 49.5 in June, comfortably beating consensus expectations of 51.0 and pointing to improving consumer confidence even as inflation concerns persist. Across Asia, the rupee and baht were the region's worst performers last week, each down around 1% against the dollar, a divergence MUFG attributes largely to their heightened sensitivity to the ongoing oil price rebound. This article was written by Eamonn Sheridan at investinglive.com.