Most currencies across Asia advanced on Wednesday, driven by a softer U.S. dollar and an uptick in risk sentiment after a diplomatic pause between the United States and Iran. The U.S. Dollar Index slipped nearly 1% to a four-week low, while US Dollar Index Futures were trading 0.9% lower as of 23:28 ET (03:28 GMT).
Political developments in the Middle East provided the immediate catalyst. President Donald Trump said late Tuesday he had agreed to a two-week "double-sided" ceasefire with Iran, announced just hours before a self-imposed deadline to launch large-scale strikes if Tehran failed to reopen the Strait of Hormuz. The truce, arranged through last-minute mediation efforts led by Pakistan, is intended to create a narrow window for negotiations toward a broader peace deal and is conditional on Iran ensuring the "complete, immediate and safe" reopening of the Strait.
Oil reacted quickly to the news, plunging below $100 per barrel in early trade on Wednesday. Market strategists flagged the potential benefit to Asia from a calmer shipping route. As MUFG analysts put it, "These negotiations and a pulling back from the brink is certainly a positive including for Asia which has been and continues to be disproportionately hurt by a Strait of Hormuz closure."
Currencies across the region moved noticeably against the dollar. Onshore Chinese yuan strength was pronounced, with the USD/CNY pair slipping 0.5% to 6.82 yuan - its lowest level since March 2023. The Japanese yen benefited as well, with USD/JPY down 0.8%. South Korea’s won and Singapore’s dollar also gained, as USD/KRW tumbled 1.4% and USD/SGD declined 0.6%.
Other moves included a 1.2% climb in the Australian dollar against the greenback and a 0.5% drop in USD/INR to a three-week low as market participants awaited a policy decision from the Reserve Bank of India later on Wednesday.
The New Zealand dollar was one of the stronger performers after the Reserve Bank of New Zealand kept its official cash rate unchanged at 2.25%, in line with market expectations. NZD/USD rose 1.7% on the decision. In its statement, the RBNZ cautioned that higher oil prices tied to the Middle East conflict were likely to push inflation higher in the near term, even as domestic economic activity softens.
In India, the RBI is widely expected to maintain its benchmark repo rate at 5.25%, keeping policy on pause following its last action in February. Policymakers are said to be weighing the effects of volatile oil prices and global uncertainty on the domestic economy ahead of the announcement.
Traders are also positioning ahead of U.S. data later in the week. Market attention is turning to the U.S. consumer price index report due on Friday, which is expected to offer fresh direction for the dollar and the global monetary policy outlook.
Overall, the combination of a weaker dollar, news of the temporary ceasefire and central bank decisions in the region contributed to a broad-based rally in Asian currencies on Wednesday. The flow of headline-driven developments, however, leaves markets sensitive to new information on oil, shipping access in the Strait of Hormuz and forthcoming central bank guidance.