Most Asian currencies extended losses on Tuesday as market participants reacted to a widening Middle East conflict and a firmer U.S. dollar, while energy prices remained elevated.
The U.S. Dollar Index strengthened 0.2% during Asian trading hours, building on a 0.8% surge overnight driven by safe-haven demand and keeping the index close to a five-week high. U.S. Dollar Index Futures traded about 0.3% higher as of 23:50 ET (04:50 GMT).
Widening Middle East conflict keeps markets on edge
Over the weekend, U.S. and Israeli strikes on Iran intensified and resulted in the death of Supreme Leader Ayatollah Ali Khamenei, prompting missile and drone retaliation from Tehran. The situation has expanded beyond initial engagements, raising market concern about broader regional instability.
U.S. President Donald Trump said the military operation could continue for "some weeks" and noted uncertainty about who was in charge in Iran following the targeted killing, underscoring questions around the country's leadership transition.
Tehran has threatened to fully close the Strait of Hormuz and pledged to attack any vessel attempting to transit the waterway, which handles roughly a fifth of global oil shipments. That prospect has contributed to a noticeable spike in crude oil prices, a development that tends to hit currencies of net energy importers by worsening trade deficits and stoking inflationary pressures.
Asian currency moves
The South Korean won and Indian rupee were among the harder hit Asian currencies, reflecting their sensitivity to higher oil costs. The USD/KRW rate climbed 0.8% and USD/INR rose 0.4%.
By contrast, the Singapore dollar was largely unchanged, with USD/SGD trading flat through the session.
The Chinese onshore yuan firmed after the People’s Bank of China set the daily midpoint at 6.9088 per dollar, a 0.2% strengthening versus the previous fixing and the largest upward adjustment in six months. Offshore USD/CNH fell about 0.3% following two days of gains, while onshore USD/CNY turned lower.
The Japanese yen saw a modest recovery from an overnight jump, with USD/JPY edging 0.1% lower after rising 0.8% the prior session amid fragile risk appetite. The Australian dollar strengthened, with AUD/USD up 0.3%.
In sum, the combination of a firmer dollar, higher energy prices and geopolitical uncertainty left a mixed picture across Asian foreign exchange markets, with particularly pronounced pressure on currencies of economies exposed to rising oil import costs.