Asian currencies mostly consolidated against the U.S. dollar in early trading Thursday as military strikes between the United States and Iran resumed, pushing investors toward safe-haven assets and reviving downside risks for the region’s exchange rates, according to multiple analysts.
“The balance of risks has shifted in a more asymmetric direction for Asian currencies, with downside risks dominating,” MUFG Bank senior currency analyst Lloyd Chan said in a research report. The Singapore dollar held flat against its U.S. counterpart at 1.2876 Singapore dollars, according to LSEG data, but Chan said it is likely to be weighed by rising geopolitical risks.
The renewed hostilities follow what Commerzbank Research analysts described as a second day of U.S. strikes against Iran. “The latest attacks further undermine hopes that the April ceasefire can be restored and raise the risk of prolonged disruptions through the Strait of Hormuz,” the analysts said in a note.
The U.S. dollar rose 0.2% to 1,525.60 South Korean won, a level that comes days after MSI reported the won had slid to a 17-year low on foreign selling. The greenback edged 0.1% lower to 32.92 Thai baht, while the Australian dollar slipped 0.1% to US$0.6994, LSEG data showed.
DBS Group Research FX & credit strategist Chang Wei Liang said the U.S. dollar is likely to remain bid on safe-haven demand as tensions escalate. “Ominously, Trump warned Iran that it will ‘pay the price’ for dragging out talks, and his rhetoric could mark a restart of forceful U.S. military actions,” Chang said. “There is an acute risk of more tit-for-tat responses that will leave the ceasefire in tatters.”
The U.S. Dollar Index was 0.05% lower at 99.900, according to LSEG data.
StoneX senior market analyst Matt Simpson said elevated U.S. inflation pressures continue to “underpin the U.S. dollar to the detriment of the Australian dollar,” citing U.S. CPI data released Wednesday. “Sticky U.S. inflation keeps Fed [rate] cut expectations in check,” Simpson said. Based on technical analysis, Simpson said the bias for the Australian dollar remains for “bears to fade rallies against the U.S. dollar and target the 0.6900 handle, near the high-volume node.”
If tensions continue into the third quarter, elevated oil prices and weaker global risk sentiment will probably remain a headwind for Asian currencies, Chan added.