Summary
Asian currency markets moved within tight intraday ranges on Tuesday, yet the region broadly faces sharp currency losses for March as the conflict involving the U.S., Israel and Iran undermined investor sentiment. The dollar strengthened over the month as higher oil prices and potential energy-driven inflation prompted markets to scale back bets on Fed rate reductions. Specific moves included limited change in the Chinese yuan after stronger manufacturing and services activity readings, a steadying Japanese yen under the shadow of possible Tokyo intervention, and a recovering Indian rupee following central bank action.
Market overview
Across Asia, the majority of currencies were subdued in daily trading even as they headed for pronounced monthly declines. Traders expressed concern about the implications of rising oil costs and supply disruptions for inflation, which in turn have diminished expectations for Federal Reserve interest rate cuts. These forces supported the dollar and weighed on risk-sensitive Asian currencies.
The South Korean won stood out as the weakest regional currency, with the USD/KRW exchange rate set to climb roughly 6.5% for March. The won came under heavy pressure as major capital outflows occurred from local equity markets, where investors fled previously high-flying technology shares.
Country and currency snapshots
- China - The Chinese yuan traded little changed after purchasing managers index data for March surprised to the upside. Manufacturing activity expanded more than expected, and non-manufacturing activity returned to growth. The yuan's relative resilience also reflected stronger daily midpoint fixes from the People's Bank of China and a degree of insulation from energy supply shocks. For the month, the USD/CNY pair was set to rise about 0.8%.
- Japan - The Japanese yen steadied near recent lows following repeated warnings from Tokyo about potential market intervention. USD/JPY was up about 2.3% for March overall, although some of that monthly loss for the yen was trimmed after the intervention rhetoric. Expectations that the Bank of Japan may raise interest rates later this year provided additional support for the currency. Tokyo's consumer price index data showed inflation in the capital eased in March to a four-year low amid ongoing government efforts to control utility and food costs.
- India - The rupee recovered some ground from successive record lows after reports that the Reserve Bank of India stepped into foreign exchange markets. Nonetheless, USD/INR was on track to rise roughly 3.6% for March, with earlier weakness driven by worries about how oil supply disruptions could affect the Indian economy.
- Australia - The Australian dollar saw only fleeting support from a local interest rate rise and hawkish signals from the Reserve Bank of Australia. AUD/USD was set to register a monthly loss of about 3.7%.
- Other regional currencies - The Singapore dollar and the Taiwan dollar were both trading weaker for March, with USD/SGD and USD/TWD each up by more than 2% over the month.
Dollar and broader drivers
The dollar index and related futures were relatively unchanged in Asian trading on Tuesday but were positioned for their best monthly performance since July. Overall, the dollar climbed about 2.8% in March. Safe-haven flows helped, and markets pared back expectations for Fed easing after a sharp rise in oil prices that month.
Oil surged more than 50% in March on supply disruptions attributed to the Iran conflict. The fighting showed little sign of abating on Tuesday, and one report suggested U.S. President Donald Trump might wind down military operations against Iran while leaving the Strait of Hormuz closed. These developments contributed to inflation concerns that have influenced interest-rate outlooks.
Market indicators such as the CME FedWatch tool reflected the shift in expectations, with markets no longer pricing in any Fed interest rate cuts in 2026.
Sectors affected
- Energy - elevated oil prices and supply concerns
- Financial markets - equity outflows, especially in technology sectors in South Korea
- Fixed income and monetary policy - changed expectations for Fed rate cuts
What remains uncertain
With the conflict showing no clear sign of resolution and oil markets remaining sensitive to disruptions, markets face ongoing uncertainty over inflation and central bank policy responses. Capital flows and currency intervention remain potential sources of volatility for specific Asian currencies.