Asian Currencies Hold Steady but Face March Losses
Most Asian currencies traded within a narrow range on Tuesday but remained on track for significant losses in March. Ongoing concerns surrounding the U.S.-Israel conflict with Iran continued to weaken risk appetite, while the U.S. dollar moved toward a monthly gain.
The Chinese yuan showed little movement despite stronger-than-expected purchasing managers’ index (PMI) data. Meanwhile, the Japanese yen stabilized near recent lows as markets focused on the possibility of currency intervention by Japanese authorities.
The Indian rupee rebounded from record lows following intervention by the Reserve Bank of India, although it still remained set for a monthly decline.
Iran War Drives Losses Across Asian FX Markets
Asian currencies broadly declined in March as investors reacted to rising oil prices and disruptions in global energy supply. Concerns over energy-driven inflation also led markets to scale back expectations for interest rate cuts by the Federal Reserve.
The South Korean won was the weakest performer in the region, with the USD/KRW pair rising approximately 6.5% during the month. The currency was pressured by significant capital outflows, particularly as investors exited technology stocks.
Yen Weakness and Intervention Risks in Focus
The Japanese yen saw the USD/JPY pair climb 2.3% in March, although the currency recovered slightly after repeated warnings from Tokyo about potential intervention.
The yen also received some support from expectations that the Bank of Japan may raise interest rates later this year. Data released during the month showed Tokyo inflation slowing to a four-year low, reflecting ongoing government efforts to control food and energy costs.
Australian Dollar and Indian Rupee Under Pressure
The Australian dollar declined 3.7% in March, with initial support from a rate hike and hawkish signals by the Reserve Bank of Australia fading quickly.
The Indian rupee weakened significantly, with the USD/INR pair rising 3.6%. Concerns about oil supply disruptions weighed heavily on the currency, although recent central bank intervention helped it recover from record lows.
Chinese Yuan Shows Relative Stability
The Chinese yuan was among the more resilient currencies in Asia, with the USD/CNY pair rising just 0.8% in March. This relative stability was supported by strong daily midpoint settings from the People’s Bank of China and the country’s lower exposure to energy supply disruptions.
Recent PMI data also pointed to improving economic conditions, with both manufacturing and non-manufacturing activity exceeding expectations.
Other Asian Currencies Also Decline
The Singapore dollar and Taiwan dollar also weakened during March, with both USD/SGD and USD/TWD pairs rising by more than 2%.
U.S. Dollar Set for Strong Monthly Gains
The U.S. dollar remained steady in Asian trading but was on track for its strongest monthly performance since July. The dollar index rose approximately 2.8% in March, supported by safe-haven demand and reduced expectations for Federal Reserve rate cuts.
The surge in oil prices—up more than 50% during the month due to the Iran conflict—fueled inflation concerns and strengthened the dollar’s appeal.
Rate Cut Expectations Fade as Inflation Risks Rise
Market expectations for Federal Reserve rate cuts have shifted significantly, with traders now pricing out any cuts in 2026, according to CME FedWatch data.
However, the dollar gave back some gains after Federal Reserve Chair Jerome Powell stated that long-term inflation expectations remain well anchored despite near-term energy shocks.
