Most Asian currencies continued to decline on Wednesday as investors grappled with the escalating conflict in the Middle East, a sharp rise in oil prices, and a stronger US dollar.
The USD Index closed 0.6% higher overnight and gained 0.1% in Asian trade amid the widening conflict between the US, Israel, and Iran.
USD Index futures were up 0.2% as of 8:24 AM Moscow time.
Traders Assess the Impact of the Oil Price Surge
The geopolitical crisis triggered by coordinated US and Israeli strikes on Iran over the weekend, followed by Iranian retaliation, has threatened key energy flows through the Strait of Hormuz, raising fears of prolonged supply disruptions. Brent crude oil prices have risen sharply on these risks, jumping 14% since last Friday.
The surge in oil prices has heightened concerns about rising inflation globally and dampened expectations of an imminent rate cut by the Federal Reserve.
"Asian currencies are increasingly coming under the cross-current of higher oil prices, a stronger US dollar, and deteriorating risk sentiment," an ING analyst wrote in a note.
Indian rupee hits record low
The Indian rupee fell to record lows, with the USD/INR pair rising 0.3% to 92.325 rupees, weighed by rising crude import costs and capital outflows.
The currency was poised for a fifth consecutive session of declines.
The USD/KRW pair (South Korean won) traded unchanged after jumping nearly 2% the previous day. The Bank of Korea said on Wednesday it would closely monitor whether the won exchange rate and bond yields deviate excessively from domestic fundamentals, even after accounting for external factors.
The USD/JPY (Japanese yen) pair declined 0.2%, but remained near the five-week highs reached in the previous session.
The USD/SGD (Singapore dollar) pair rose 0.1%, extending its gains.
Strong Australian GDP Data and Mixed Chinese PMI Data in Focus
Domestic data provided mixed signals. Robust Australian GDP data, with annual growth accelerating to around 2.6% and better-than-expected quarterly expansion, bolstered expectations for further rate hikes by the Reserve Bank of Australia (RBA).
However, the AUD/USD (Australian dollar) pair declined 0.6%, in line with the broader trend. In China, official PMI data showed a contraction in factory activity, while private sector surveys from RatingDog PMI reported stronger-than-expected expansion, highlighting the divergence in the economic pulse.
The USD/CNY pair (Chinese yuan) rose 0.3% on the domestic market, poised for a fourth consecutive day of gains.