Asian Currencies Decline as Oil Prices Surge and Dollar Strengthens
Most Asian currencies weakened further on Wednesday as investors reacted to escalating tensions in the Middle East, rising oil prices, and a stronger U.S. dollar. The pressure was particularly visible in India, where the Indian rupee dropped to a new record low.
The U.S. Dollar Index gained 0.6% overnight and added another 0.1% during Asian trading, supported by growing geopolitical risks stemming from the expanding conflict involving the United States, Israel, and Iran.
Meanwhile, U.S. Dollar Index futures rose 0.2% as of 00:24 ET (05:24 GMT), indicating continued demand for the dollar as a safe-haven currency.
Oil Price Surge Raises Market Concerns
The latest geopolitical tensions began after coordinated U.S. and Israeli strikes on Iran over the weekend, followed by retaliatory actions from Tehran. These developments have raised concerns about potential disruptions to global energy supplies, particularly through the Strait of Hormuz, one of the world’s most important oil shipping routes.
As a result, Brent crude oil prices have surged sharply, climbing roughly 14% since last Friday amid fears of prolonged supply disruptions.
The sharp increase in oil prices has intensified concerns about global inflation and has reduced expectations that the Federal Reserve will cut interest rates in the near term.
According to analysts at ING, Asian currencies are increasingly facing pressure from three major forces: rising oil prices, a stronger U.S. dollar, and weakening global risk sentiment.
Indian Rupee Falls to Record Low
The Indian rupee hit a record low, with the USD/INR exchange rate rising 0.3% to 92.325 rupees. The currency has been under pressure due to rising crude oil import costs and capital outflows from Indian markets.
The rupee is now on track for its fifth consecutive day of losses.
Elsewhere in Asia, the South Korean won traded flat after the USD/KRW pair surged nearly 2% in the previous session.
The Bank of Korea stated it will closely monitor currency movements and bond yields to ensure they remain aligned with domestic economic fundamentals despite external pressures.
Yen, Singapore Dollar and Regional Moves
The Japanese yen strengthened slightly, with the USD/JPY pair slipping 0.2%, although the dollar remained near five-week highs reached earlier.
The Singapore dollar weakened modestly, with the USD/SGD pair rising 0.1%, extending its recent gains.
Australia GDP and China PMI Data in Focus
Economic data across the region offered mixed signals. In Australia, GDP growth remained strong, with annual expansion accelerating to around 2.6%, while quarterly growth exceeded expectations.
The data reinforced expectations that the Reserve Bank of Australia (RBA) may continue raising interest rates. Despite the strong economic figures, the Australian dollar fell 0.6% against the U.S. dollar, reflecting broader weakness in Asian currencies.
In China, official PMI data showed factory activity remained in contraction territory, while private-sector surveys from RatingDog PMI pointed to stronger-than-expected expansion. The contrasting data highlights ongoing uncertainty surrounding the pace of China’s economic recovery.
The Chinese yuan weakened slightly, with the USD/CNY pair rising 0.3%, marking its fourth consecutive day of gains.
