Asian currencies weakened on Thursday as continued hostilities between the U.S., Israel, and Iran drove sharp gains in oil prices and kept markets on edge over economic disruptions due to energy.
The dollar advanced in Asian trade, benefiting in part from haven demand, and as higher oil also drove up bets on stickier inflation in the coming months.
Asia FX falls as oil surge sparks economic uncertainty Asian currencies weakened across the board, given that a bulk of the region is highly dependent on oil and gas imports through the Strait of Hormuz, which is slowly becoming a major focus point in the Iran conflict.
The Chinese yuan’s USD/CNY pair rose 0.2%, the Japanese yen’s USD/JPY pair rose 0.1%, while the South Korean won’s USD/KRW added 0.2%.
The Australian dollar’s AUD/USD pair fell 0.2%, retreating from a near four-year high. The currency remained upbeat amid growing confidence that the Reserve Bank of Australia will hike interest rates next week.
The Indian rupee’s USD/INR pair rose 0.3%, with the currency seen as among the most exposed to disruptions in energy supplies. ANZ analysts said they expect the rupee to remain volatile in the coming months, amid limited clarity on how the South Asian economy will navigate a fractured energy landscape.
The Singapore dollar’s USD/SGD pair rose 0.2%, while the Taiwan dollar’s USD/SGD pair rose 0.1%.
Dollar firms after muted CPI data, PCE print in focus The dollar index and dollar index futures rose between 0.2% and 0.3% in Asian trade, as heightened anxiety over the Iran war drove safe haven buying in the greenback.
Consumer price index data released overnight showed inflation remained largely steady in February from the prior month. But the print did not reflect the inflation bump from rising oil prices due to the Iran conflict, with analysts now predicting stickier inflation in the event of a prolonged conflict.
PCE price index data, due later this week, is expected to provide more definitive cues on U.S. inflation. The print is the Federal Reserve’s preferred inflation gauge, and is likely to factor into expectations for long-term rates.
A key point of concern over the Iran conflict is that energy-driven inflation could elicit a more hawkish stance from major global central banks, including the Fed, in the coming months.
While such a scenario bodes well for the dollar, it is likely to weigh on Asian currencies.
