Iran conflict fuels ongoing energy concerns, Asian currencies weaken, and the US dollar rises

Investing.com - On Thursday, Asian currencies weakened as ongoing hostilities between the U.S., Israel, and Iran drove crude oil prices sharply higher, keeping markets alert to potential economic disruptions caused by energy issues.

The U.S. dollar strengthened in Asian trading, partly benefiting from safe-haven demand, while rising oil prices also heightened market bets on more persistent inflation in the coming months.

Oil Price Surge Sparks Economic Uncertainty, Asian Currencies Decline

Asian currencies all declined as most countries in the region heavily rely on oil and natural gas imports through the Strait of Hormuz, which is increasingly becoming a focal point of Iran-related conflicts.

The Chinese yuan (USD/CNY) rose 0.2%, the Japanese yen (USD/JPY) increased 0.1%, and the South Korean won (USD/KRW) gained 0.2%.

The Australian dollar (AUD/USD) fell 0.2%, retreating from near four-year highs. The currency remains optimistic, with markets increasingly confident that the Reserve Bank of Australia will raise interest rates next week.

The Indian rupee (USD/INR) rose 0.3%, making it one of the most vulnerable currencies to energy supply disruptions. ANZ Bank analysts stated they expect the rupee to remain volatile in the coming months, as South Asia’s economic response to the fractured energy landscape remains uncertain.

The Singapore dollar (USD/SGD) increased 0.2%, and the Taiwanese dollar (USD/SGD) rose 0.1%.

Moderate CPI Data Supports Dollar Strength, Focus Turns to PCE Data

The U.S. dollar index and dollar futures rose between 0.2% and 0.3% during Asian trading, as heightened anxiety over the Iran conflict fueled safe-haven buying of the dollar.

Overnight, consumer price index (CPI) data showed February inflation remained largely stable compared to the previous month. However, this data did not reflect the inflationary impact of rising oil prices due to the Iran conflict. Analysts currently predict that if the conflict persists, inflation will become more sticky.

Later this week, the PCE price index data is expected to provide clearer clues on U.S. inflation. As the Federal Reserve’s preferred inflation measure, this data could influence expectations for long-term interest rates.

A key concern surrounding the Iran conflict is that energy-driven inflation may lead major global central banks, including the Federal Reserve, to adopt a more hawkish stance in the coming months.

While this scenario benefits the dollar, it could also put pressure on Asian currencies.

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