Asian currency markets showed little directional momentum on Friday as traders assessed the implications of higher energy prices and intensifying geopolitical strains, even as the Japanese yen remained supported by safe-haven flows.
The U.S. Dollar Index was largely unchanged at 101.60 by 03:33 GMT, sitting close to a three-week trough and on track for a second consecutive weekly decline.
The Japanese yen held onto recent advances. The USD/JPY rate inched up 0.1% to 156.90 on Friday after a near 1% fall the session before. Overall, the yen reached its strongest level in more than a month as investors sought refuge amid worries about the sustainability of artificial intelligence related investments and rising tensions in the Middle East.
Contributing to a softer U.S. dollar, U.S. Treasury yields eased, with the benchmark 10-year yield approaching a one-month low of 4.953% as demand for safer assets increased.
Energy markets were a focal point for currency moves across the region. Brent crude was trading near $114 a barrel on Friday after a 4% surge on Thursday driven by attacks in Saudi Arabia that raised concerns over potential supply disruptions. Higher oil prices were flagged as a risk for inflation and as a complicating factor for monetary policy in energy-importing Asian economies, including Japan, India and South Korea.
Elsewhere in Asia, Chinese currency pairs were mostly steady. Both the onshore USD/CNY and offshore USD/CNH exchanged hands near four-year lows, with little net change on the day. The South Korean won saw the USD/KRW pair move 0.2% lower, while USD/SGD traded flat.
The Indian rupee moved back into negative territory on Friday after earlier gains this week. USD/INR rose 0.3% to 95.109 following a 0.4% jump in the prior session; the rupee had previously recorded nine straight sessions of decline through Wednesday. The Australian dollar was marginally weaker, with AUD/USD down about 0.1%.
Market participants were focused on a busy central bank calendar next week. The U.S. Federal Reserve is expected to keep its policy rate in a 3.75% to 4.00% range at its meeting on October 28. The European Central Bank and the Bank of Japan are scheduled to announce policy decisions on October 29 and October 30 respectively.
For the yen in particular, attention will be fixed on the Bank of Japan's assessment of inflation and any guidance on the timing of additional rate moves. Traders also remained watchful for signs of potential Japanese currency intervention, which could influence near-term yen dynamics.
In sum, Asian FX markets entered the weekend in a cautious state, with crude-driven inflation concerns and geopolitical risks dampening risk appetite, while falling U.S. yields and safe-haven flows supported the yen. Policy decisions from several major central banks next week are expected to provide further directional cues.