Asian Currencies Face Pressure as U.S.-Iran Conflict Weighs on Markets

Asian currencies remained broadly under pressure on Tuesday as geopolitical uncertainty surrounding the U.S.-Israel war with Iran continued to weigh on investor sentiment. The U.S. dollar index edged up 0.2% during Asian trading hours, supported by concerns that the ongoing conflict could fuel inflationary pressures across global markets.

The Chinese yuan stood out as a regional outperformer, with the USD/CNY pair dropping nearly 0.3% and breaking back below the 6.9 level. The currency gained momentum after China's January-February trade data revealed a significantly larger-than-expected trade surplus, driven by a strong surge in exports. Solid domestic spending during the Lunar New Year holiday also helped push imports higher than anticipated, though analysts remain cautious about whether that consumer momentum will be sustained beyond the festive season. The People's Bank of China further supported the yuan by setting a stronger-than-expected daily midpoint fix.

The Japanese yen saw minimal movement, with USD/JPY rising just 0.1%. Revised fourth-quarter GDP figures showed Japan's economy expanded more robustly than initially reported, buoyed by strong capital expenditure and steady household consumption. While the data signals economic resilience and gives the Bank of Japan greater flexibility to consider future rate hikes, heightened global uncertainty makes near-term policy action unlikely.

Elsewhere across Asia, the Australian dollar slipped 0.2%, and the South Korean won weakened sharply, with USD/KRW surging 1.1%. The Singapore dollar and Indian rupee both edged lower, with the rupee extending its move above the 92 level against the dollar.

Market sentiment remained fragile despite U.S. President Donald Trump indicating a resolution to the conflict could be near. Iran's Revolutionary Guard quickly dismissed any prospect of de-escalation, keeping traders cautious. Tensions escalated over the weekend following strikes on Tehran's oil infrastructure, with Iran retaliating by targeting energy assets across the region and disrupting shipping through the Strait of Hormuz.