Asia FX Holds Steady as Iran Deal Hopes Pressure Dollar
Most Asian currencies traded in a narrow range on Thursday after recording strong gains in the previous session. Investor sentiment improved after growing optimism surrounding a potential U.S.-Iran peace agreement pushed oil prices sharply lower and weighed on the U.S. dollar.
The U.S. Dollar Index remained mostly unchanged during Asian trading hours after declining 0.4% overnight.
Lower Oil Prices Support Asian Currencies
Regional currencies strengthened on Wednesday after crude oil prices plunged more than 7%. The decline followed an Axios report stating that the White House was close to reaching a memorandum of understanding with Iran aimed at ending the ongoing conflict.
Falling oil prices provided relief for oil-importing Asian economies, helping ease inflation concerns and improving trade balance expectations. Energy costs had surged in recent months due to tensions surrounding the Strait of Hormuz crisis.
At the same time, the U.S. dollar stayed under pressure as easing geopolitical risks reduced demand for traditional safe-haven assets.
Analysts at MUFG noted that further de-escalation in the Middle East, including Iran potentially accepting the proposed U.S. agreement and a gradual reopening of the Strait of Hormuz, could continue supporting Asian currency gains.
Japanese Yen, Chinese Yuan and Korean Won Performance
The Japanese yen’s USD/JPY pair traded largely flat after falling nearly 1% in the previous trading session.
China’s onshore USD/CNY and offshore USD/CNH currency pairs both slipped around 0.1%.
Meanwhile, the South Korean won’s USD/KRW pair rose 0.5% on Thursday after recording a sharp 1.6% decline a day earlier.
The Indian rupee’s USD/INR pair edged 0.2% higher, while Singapore’s USD/SGD pair remained mostly unchanged.
Australian Dollar Pressured by Weak Trade Data
The Australian dollar’s AUD/USD pair traded flat after fresh economic data unexpectedly showed Australia posting a trade deficit in March.
Official figures released on Thursday revealed that Australia recorded a trade deficit of A$1.84 billion, significantly missing market expectations for a A$4.25 billion surplus. The weaker result highlighted ongoing pressure from softer commodity exports and rising imports.
Bank of Japan Signals Possible Rate Hikes
Minutes from the Bank of Japan’s March policy meeting showed that several policymakers believe additional interest-rate hikes may be necessary if energy-related inflation pressures from the Iran conflict continue to persist.
Investors are now closely watching Friday’s U.S. nonfarm payrolls report for further signals regarding the Federal Reserve’s future interest-rate decisions.
