Most Asian currencies traded in a narrow range on Tuesday as the US-Israeli war against Iran sapped risk appetite, while the dollar headed for a one-month gain.
The Chinese yuan was little changed after stronger-than-expected March purchasing managers' index data, while the Japanese yen stabilized near recent lows amid continued scrutiny of Tokyo's currency interventions.
The Indian rupee continued its recovery from record lows after the Reserve Bank intervened in currency markets, though it was still heading for March losses. Asian Currencies Head for March Losses Amid Iran Concerns
Asian currencies were poised for significant losses in March as traders worried about the impact of high oil prices and energy supply disruptions. Concerns about energy-driven inflation also led markets to revise expectations for Federal Reserve interest rate cuts.
The South Korean won was by far the worst performer in Asia, with the USD/KRW pair poised to gain around 6.5% this month. The won suffered from large capital outflows from local equity markets as investors dumped technology stocks.
The USD/JPY (Japanese yen) pair rose 2.3% in March, with the yen paring some of its monthly losses following a series of warnings from Tokyo about possible currency intervention. The yen also received some support from rising bets that the Bank of Japan will raise interest rates later this year. Consumer price index data showed that Tokyo inflation rose less than expected in March, falling to a four-year low amid ongoing government measures to contain utility and food prices.
The AUD/USD pair (Australian dollar) was poised to lose 3.7% this month, with the interest rate hike and tough signals from the Reserve Bank of Australia providing only temporary support.
The USD/INR pair (Indian rupee) was poised to rise 3.6%, with the rupee hitting a series of record lows against the dollar amid concerns about the impact of oil supply disruptions on the Indian economy.
However, the rupee rebounded from record lows this week amid reports that the Reserve Bank of India intervened in foreign exchange markets.
The Chinese yuan was one of the best performers in Asia, with the USD/CNY pair poised to rise 0.8%. While the bulk of the yuan's strength came from stronger daily fixings from the People's Bank of China, China is also seen as more insulated from energy supply shocks.
Purchasing Managers' Index data showed that Chinese manufacturing activity rose more than expected in March, while non-manufacturing activity unexpectedly rose.
The USD/SGD (Singapore dollar) and USD/TWD (Taiwan dollar) pairs traded up more than 2% in March.
The dollar is headed for March gains as the Iran war lowers rate cut bets.
The dollar index and dollar index futures were little changed in Asian trading but were poised for their best month since July.
The dollar traded up 2.8% in March, benefiting partly from safe-haven demand, while expectations of energy-driven inflation led markets to trim expectations for a Federal Reserve interest rate cut. This occurred amid a more than 50% surge in oil prices in March due to supply disruptions caused by the war with Iran. The conflict showed no signs of abating on Tuesday, with a report suggesting that US President Donald Trump could scale back military operations against Iran while keeping the Strait of Hormuz closed.
CME Fedwatch showed that markets are no longer pricing in any Fed interest rate cuts in 2026.