Why Emerging Market Currencies Could Surge: The Hidden Geopolitical Trigger

• US‑Iran nuclear dialogue may lift risk sentiment, unlocking a 5‑7% upside for key EM currencies.
• MUFG forecasts South African rand and Chilean peso to outpace peers, targeting near‑7% gains by year‑end.
• Malaysia’s ringgit and South Korea’s won are positioned for ~5% moves, driven by fiscal stimulus and stable tariff outlook.
• Technical charts show bullish momentum on the ringgit and won, while the rand shows a breakout pattern.
• Bear‑case triggers include a resurgence of geopolitical tension or unexpected US tariff hikes.

You missed the warning signs that could make your portfolio explode.

The latest progress in US‑Iran nuclear talks is more than a headline; it’s a catalyst that could reshape emerging‑market foreign‑exchange (EM FX) dynamics. Derek Halpenny of MUFG Bank argues that a warming of relations would bolster global sentiment, providing a fresh tailwind for currencies that have been fighting on the back foot. Combine that with a reasonable global economic outlook—no new US tariffs and fiscal stimulus in major economies—and the stage is set for a multi‑currency rally.

How US‑Iran Nuclear Talks Could Ignite EM FX Gains

When the United States and Iran report progress on nuclear negotiations, risk‑averse investors often retreat to safe‑haven assets. However, a genuine de‑escalation can reverse that flow. Lower geopolitical risk reduces the premium investors demand for emerging‑market exposure, allowing local currencies to appreciate against the dollar.

Historically, similar diplomatic breakthroughs have lifted EM FX. For example, the 2015 Iran nuclear deal saw the Iranian rial recover modestly, and broader EM indices posted gains as the market re‑priced risk. The current dialogue, if it leads to a tangible agreement, could repeat that pattern but on a wider scale because the US dollar’s dominance amplifies the effect on other EM currencies.

Why MUFG’s Rand and Peso Picks Outperform Their Peers

MUFG’s research team highlights the South African rand and Chilean peso as top performers, each targeting close to a 7% rally by year‑end. The rand benefits from a commodities‑driven recovery; higher copper and platinum prices improve South Africa’s trade balance, supporting the currency. Moreover, the country’s fiscal consolidation measures are beginning to show traction, easing debt concerns.

Chile’s peso, on the other hand, rides the copper super‑cycle. As global demand for the metal climbs—fuelled by renewable‑energy infrastructure and electric‑vehicle production—Chile’s export revenues surge, strengthening the peso. Both countries also enjoy relatively stable political environments compared with other EMs that are wrestling with electoral uncertainty.

Sector‑Wide Implications: Commodities, Debt, and Inflation

EM currencies are not isolated; they react to commodity trends, sovereign debt dynamics, and inflation expectations. A softer dollar—often a by‑product of US‑Iran détente—pushes commodity prices higher, directly benefiting export‑rich economies like South Africa and Chile.

Debt‑to‑GDP ratios matter too. South Africa’s ratio is trending down, while Chile’s fiscal buffer is expanding thanks to higher copper revenues. Lower debt burdens reduce currency vulnerability to capital flight.

Inflation is another piece of the puzzle. Emerging markets that can keep inflation in check while maintaining growth are more attractive to foreign investors. Both the rand and peso have shown modest inflation trends, thanks to central‑bank credibility and supply‑side improvements.

Technical Signals: What Charts Reveal About the Ringgit and Won

The Malaysian ringgit and South Korean won are forecasted to gain about 5% each. Technical analysis supports this view. The ringgit recently broke above its 50‑day moving average, entering a bullish channel that aligns with a rising relative strength index (RSI) above 55, indicating upward momentum.

The won, meanwhile, has formed a classic “ascending triangle” pattern—higher lows converging with a flat resistance at 1,250 won per dollar. A breakout above that level could trigger a 5% rally, especially if global risk appetite improves.

These patterns suggest that price action is already pricing in the positive macro narrative, and a further catalyst—like a confirmed US‑Iran agreement—could accelerate the breakout.

Investor Playbook: Bull and Bear Scenarios for EM Currencies

Bull Case: The nuclear talks culminate in a verifiable agreement, US tariffs remain static, and fiscal stimulus in the US, EU, and China sustains global growth. In this environment, EM commodities rise, risk appetite surges, and the rand, peso, ringgit, and won each post 5‑7% gains. Portfolio managers can overweight these currencies via ETFs, forward contracts, or direct FX exposure.

Bear Case: Negotiations stall, a sudden escalation in the Middle East spikes oil prices, and the US re‑introduces tariff threats. Capital outflows intensify, the dollar strengthens, and EM FX stalls or retreats. In this scenario, investors should hedge exposure using options or diversify into more defensive assets like US Treasury bonds.

Strategically, a balanced approach—maintaining core exposure to the high‑conviction picks while keeping a portion in liquid hedges—offers the best risk‑adjusted return profile.

Bottom line: The geopolitical winds are shifting, and savvy investors who act now can capture upside across a basket of emerging‑market currencies.