Most Asian currencies moved in a tight range on Wednesday, while the dollar steadied near a six-week high as markets remained on edge over the Iran war and its potential impact on interest rates.
The Japanese yen firmed slightly amid increasing conviction in a June interest rate hike by the Bank of Japan, while the Indian rupee hit a fresh record low amid continued pressure from high oil prices.
The Chinese yuan firmed slightly, while the Taiwan dollar moved little.
The dollar index and dollar index futures rose slightly in Asian trade, and were close to levels last seen in early April.
The greenback was buoyed by increasing speculation over whether sticky inflation will push the Federal Reserve into hiking interest rates later in the year.
Philadelphia Fed President Anna Paulson said on Tuesday evening that while current monetary policy appeared to be appropriately restrictive, it was 'healthy' for financial markets to speculate over potential rate hikes.
Renewed rate hike speculation was driven chiefly by a recent energy-driven surge in inflation, stemming from the Iran war.
The conflict blocked off a fifth of the world's oil supplies and sent prices skyrocketing. This factored into higher inflation on energy costs.
Washington signaled this week that negotiations with Iran were going well. But this only spurred a brief blip in oil prices, which retained a bulk of their recent gains.
Broader Asian currencies moved little on Wednesday, as caution over interest rates and the Iran war kept traders to the sidelines.
The Indian rupee was a major underperformer, with the USD/INR pair rising 0.1% to a record high of 96.784 rupees.
The rupee was battered by a surge in oil prices this week, being especially vulnerable to high crude costs due to India's large reliance on energy imports. Traders also questioned the Reserve Bank of India's ability to defend the rupee further.
The Japanese yen's USD/JPY pair fell slightly from 159 yen, with the yen remaining largely weak. But the currency took some support from increasing speculation that the BOJ will raise interest rates next month, especially in the face of an energy-driven inflation spike.
The Australian dollar's AUD/USD pair fell 0.2%, while the Singapore dollar's USD/SGD and the South Korean won's USD/KRW were both flat.
The Chinese yuan's USD/CNY pair fell slightly, while the Taiwan dollar's USD/TWD pair was flat. Tensions between China and Taiwan rose this week after U.S. President Donald Trump raised questions over more arm sales to Taipei and warned against declaring independence, shortly after a U.S.-China summit.
Taipei decried Trump's comments, but signaled earlier this week that it would welcome a direct call with Trump.
