Asian currencies retreated on Monday as the dollar hit a three-month high after an escalation in the U.S.-Israel war with Iran sparked a rally in oil prices.
The Chinese yuan weakened even as consumer price index inflation data for February read stronger than expected on increased spending during the Lunar New Year holiday.
Regional risk sentiment was battered by an escalation in the Iran conflict over the weekend, especially after several strikes on oil infrastructure in the Middle East.
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Dollar surges as Iran escalation drives up oil prices The dollar index and dollar index futures jumped 0.6% each in Asian trade, hitting their highest levels since late-November.
The greenback was buoyed by safe haven buying, while a surge in oil prices also provided support.
Oil jumped as much as 30%, rising well past $100 a barrel and coming close to highs seen during the onset of the Russia-Ukraine war in 2022.
Israeli and U.S. airstrikes targeted Iranian oil facilities over the weekend, while Tehran retaliated by launching missile strikes against several oil facilities in Middle Eastern countries.
Iran also effectively blocked the Strait of Hormuz by attacking vessels in the shipping channel, reports showed. The Strait is a key source of oil for much of Asia, with its potential closure heralding supply disruptions for a bulk of the region.
Asia FX battered by oil price shock Concerns over persistent supply disruptions and elevated oil prices dented Asian markets, especially regions perceived as more exposed to oil supply shocks.
The Japanese yen’s USD/JPY pair jumped nearly 0.7%, while the South Korean won’s USD/KRW pair surged nearly 0.9%. This was accompanied by deep losses in their respective stock markets.
The yen took little support from stronger-than-expected wage income data for January, which showed a strong increase in wages– a trend that could underpin medium-term inflation expectations in Japan.
The Australian dollar’s AUD/USD pair– usually seen as an indicator of Asian risk appetite– fell 0.5%.
The Indian rupee’s USD/INR pair rose 0.6% and blew past the 92 rupee level, while the Singapore dollar’s USD/SGD pair jumped 0.3%.
Chinese yuan weakens past heady CPI The Chinese yuan’s USD/CNY pair rose 0.35% on Monday, rising above the 6.9 yuan level. The currency was also pressured by a weaker midpoint fix from the People’s Bank.
Chinese consumer price index inflation grew 1.3% year-on-year in February, government data showed. The print was higher than expectations of 0.9%, and also grew at its fastest pace in three years.
The strong inflation print was driven chiefly by increased spending during the extended Lunar New Year holiday, as demand for travel, services, and discretionary goods rose sharply.
But producer price index inflation still contracted, with markets now seeking more signs as to whether China’s inflationary uptrend will continue past the holiday boom.
