Asian currencies fell on Tuesday as the U.S. and Iran launched new attacks to wrest control of the Strait of Hormuz, prompting oil to rally to more than $113 per barrel and the Indonesian rupiah to drop to a record low.
The U.S. and Iran actions raised alarm in financial markets as the most serious escalation since a brittle U.S.-Iran ceasefire came into force in early April.
Oil prices soared more than 6% on Monday and eased back slightly on Tuesday in Asia.
That shook currencies in Asia, which relies heavily on oil-imports, on concerns rising fuel costs will unleash inflationary pressure and hamper economic growth.
"Markets are paring back risk trades after the US and Iran exchanged fire in the Strait of Hormuz, amid the start of US efforts to guide ships through the strait," said Chang Wei Liang, FX & Credit Strategist with DBS.
That "could add further pressures to Asian importers’ currencies, including INR (Indian rupee), IDR (rupiah), and THB (Thai baht)."
The rupiah fell to a record low of 17,430 per U.S. dollar, a sixth straight drop. The currency is one of the hardest-hit Asian currencies due to the conflict and has lost nearly 3.8% since the Iran war began.
The Philippine peso dropped 0.2%, trading not too far from its record low of 61.726 per dollar on Monday. The peso has dropped about 7% since the conflict began and is Asia's weakest-performing currency since the war started.
Philippines data showing annual inflation quickened more than expected in April to a three-year high of 7.2% underlined the economic pressures of higher oil prices.
The Thai baht weakened to 32.74 per dollar. The currency has dropped 3.9% this year so far.
The Malaysian ringgit fell 0.3% to 3.9620 per dollar, outperforming its peers in Asia backed by financial and political stability.
Meanwhile, Taiwan stocks slipped 0.2% as the escalation in the Middle East disturbed the chip rally that has helped the benchmark add nearly 40% this year so far.
Largely positive tech earnings in the U.S. and Asia signalled continued strong demand for chips as big tech lays out massive capital expenditures to build data centres. That helped Taiwan stocks surge 22.7% in April, its best month since December 2001.
South Korean and Chinese markets were closed for a public holiday. Jakarta stocks added 0.7%. The benchmark is down 18.7% this year, unsettled by Indonesia's fiscal and governance health.
Data showed Indonesia's economy grew 5.61% in the January-March quarter from a year earlier, its fastest pace in more than three years.
HIGHLIGHTS:
** Taiwan won't give in to pressure, president says on return from Eswatini
** South Korean industry minister to meet Lutnick, discuss US investment
** Indonesia c.bank says it will take measured steps to safeguard rupiah after hitting fresh low. - Reuters
