Asian currencies weakened on Thursday as the ongoing conflict involving the United States, Israel, and Iran pushed oil prices sharply higher and increased market concerns about potential economic disruptions caused by rising energy costs. The surge in crude prices has intensified uncertainty across financial markets, particularly in Asia, where many economies depend heavily on imported oil and gas.
The U.S. dollar strengthened during Asian trading hours, supported partly by safe-haven demand as investors sought stability amid geopolitical tensions. Higher oil prices also raised expectations that inflation could remain persistent in the coming months, which further supported the greenback.
Asian currencies decline as oil rally fuels economic concerns
Currencies across Asia moved lower, reflecting the region’s strong reliance on energy imports. Many Asian economies depend on oil and gas shipments passing through the Strait of Hormuz, a critical global shipping route that has become increasingly central to the Iran conflict. Any disruption in this area could significantly impact energy supply and prices, putting pressure on regional currencies.
China’s yuan weakened slightly, with the USD/CNY pair rising 0.2%. The Japanese yen also slipped, as the USD/JPY pair increased by 0.1%. Meanwhile, the South Korean won declined, with the USD/KRW pair adding 0.2%.
The Australian dollar fell 0.2% against the U.S. dollar, pulling back from a near four-year high. Despite the decline, sentiment around the currency remained relatively positive as markets expect the Reserve Bank of Australia to raise interest rates at its upcoming meeting.
The Indian rupee also came under pressure, with the USD/INR pair rising 0.3%. Analysts consider the rupee particularly vulnerable to energy supply disruptions because of India’s heavy dependence on imported crude oil. Economists at ANZ expect the rupee to remain volatile in the coming months as uncertainty persists over how the South Asian economy will adapt to a potentially unstable global energy environment.
Elsewhere in the region, the Singapore dollar weakened, with the USD/SGD pair gaining 0.2%, while the Taiwan dollar also slipped slightly as its USD/TWD pair rose about 0.1%.
Dollar strengthens as markets await key U.S. inflation data
The U.S. dollar index and dollar index futures climbed between 0.2% and 0.3% in Asian trading, supported by safe-haven flows linked to the escalating Iran conflict. Investors increasingly moved toward the dollar as geopolitical uncertainty drove demand for more stable assets.
Recent consumer price index (CPI) data showed that U.S. inflation remained largely stable in February compared with the previous month. However, the report did not yet capture the potential inflationary impact of rising oil prices caused by the Iran conflict. As a result, analysts believe inflation could become more persistent if the conflict continues and energy prices remain elevated.
Markets are now closely watching the upcoming release of the U.S. Personal Consumption Expenditures (PCE) price index later this week. The PCE index is the Federal Reserve’s preferred measure of inflation and often plays a major role in shaping expectations for interest rates and monetary policy.
A prolonged surge in energy prices could push global inflation higher and prompt major central banks, including the Federal Reserve, to adopt a more hawkish policy stance in the coming months. While tighter monetary policy could support the U.S. dollar, it may place additional pressure on Asian currencies that are already facing headwinds from rising energy costs and geopolitical uncertainty.
