Most emerging Asian currencies pulled back on Monday, under pressure from a buoyant U.S. dollar as unresolved U.S.-Iran peace talks drove up safe haven demand, while an untiring AI-led rally aided regional equity markets.
MSCI's index tracking global EM currencies fell 0.1%, while the EM Asia equities gauge advanced more than 1% to a record high, led by South Korea's tech-heavy KOSPI.
The Philippine peso fell 0.7% to 60.912 per U.S. dollar, its biggest single-day decline since the end of April, while the South Korean won slipped 0.8% in its third straight session of losses.
The dollar index rose to 98.101 after President Donald Trump swiftly rejected Iran's response to a U.S. peace proposal and called it "totally unacceptable", sparking a rally in oil prices.
Energy-dependent Asian economies are exposed to higher oil prices and the stronger inflation and strained economic growth that can result. China recorded a 45-month high in factory gate inflation in data released on Monday.
"Geopolitical developments will keep policymakers cautious, particularly with the external pressures across the region becoming more differentiated," said Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank, adding that both price and external risks were emerging for regional central banks.
"Although our base case remains for central banks in the region to stay in wait-and-see mode, the risks of policy rate hikes from Bank Indonesia, Reserve Bank of India and Bank of Thailand are rising."
In the Philippines, April inflation surprisingly jumped to its highest level in three years last week, driving investors to raise their expectations for further rate increases.
The Indonesian rupiah hovered a few points shy of its record low of 17,445 against the dollar, while the ringgit and Singapore dollar slipped 0.2% each.
Elsewhere, the KOSPI surged more than 5% to a record peak on a chipmaker rally from optimism surrounding artificial intelligence.
Samsung Electronics rose more than 5% and SK Hynix gained more than 10%, with both chipmakers hitting record levels.
Taiwan's benchmark rose 0.9%, inching closer to its record level touched last week. Equities in Manila, Singapore and Bangkok added between 0.2% and 0.3%.
Shares in Jakarta slumped as much as 1.8% to their lowest level since early July 2025, dragged down by major financial firms, Bank Central Asia, Bank Mandiri and Bank Rakyat Indonesia.
After data last week showed Indonesia's economy grew in the first quarter at its fastest pace in more than three years, ANZ analysts forecast that growth will moderate as temporary support fades and the Iran-war shock filters through to squeeze corporate profit margins, weaken sentiment and tighten financial conditions.
HIGHLIGHTS:
** Malaysia and Indonesia central banks sign deal to boost cooperation
** Oil rises $4 after Trump rejects Iran's response to US peace proposal
** Thailand's former PM Thaksin freed from prison - Reuters
