Overview
Asian currencies generally lost ground on Thursday as persistent hostilities between the U.S., Israel, and Iran fueled a rise in oil prices and renewed worries about energy-related disruptions to trade and economic activity. The dollar gained in regional trade, aided by safe-haven buying and a market shift toward expectations of stickier inflation should oil remain elevated.
Currency moves across the region
Across Asia, the dollar strengthened versus several key regional currencies. The USD/CNY rate rose 0.2%, while USD/JPY increased 0.1% and USD/KRW added 0.2%. The Australian dollar retreated, with AUD/USD down 0.2% after pulling back from a near four-year high amid continuing investor attention on prospective Reserve Bank of Australia action next week.
The Indian rupee registered further pressure, with USD/INR rising 0.3%. The rupee is noted as particularly exposed to potential energy supply disruptions, and ANZ analysts say they expect the currency to remain volatile in the months ahead amid unclear prospects for how India will manage 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, inflation data, and policy implications
The dollar index and dollar futures moved higher in Asian trading, climbing between 0.2% and 0.3%, supported by safe-haven demand as geopolitical tensions persisted. Consumer price index data released overnight showed inflation largely unchanged in February from the prior month. That CPI reading did not capture the inflationary impact of higher oil linked to the Iran conflict, leading analysts to warn of potentially stickier inflation if the conflict continues.
Markets are awaiting the U.S. personal consumption expenditures (PCE) price index later this week. The PCE is the Federal Reserve’s preferred inflation gauge and is expected to supply clearer guidance on the inflation outlook, which in turn could influence expectations for long-term interest rates.
Potential central bank response and market effects
A central concern is that energy-driven inflation could push major global central banks toward a more hawkish stance, including the Federal Reserve. Such a shift would generally support the dollar while exerting downward pressure on Asian currencies, particularly in economies that are heavy net importers of oil and gas and are vulnerable to disruptions in supply through the Strait of Hormuz.
Implications for markets and investors
With oil prices elevated amid the conflict, markets are pricing in greater uncertainty around inflation and policy trajectories. Investors and traders are watching upcoming inflation prints closely for clues on how central banks may adjust their policy paths and how those moves might ripple across currency markets and broader asset classes.
Note: Analysts and market participants cited in this report refer to commentary and expectations as described above; this piece does not introduce additional forecasts beyond those statements.