The recent escalation and subsequent diplomatic developments in the Iran conflict have significantly impacted currency markets, particularly risk-sensitive and energy-dependent Asian FX pairs. On Tuesday, AUD/USD rallied 0.69%, snapping a five-session losing streak to close around 0.6900 after rebounding sharply from a session low near 0.6830. This marked the pair's strongest single-day move in over a week, driven by renewed risk appetite following reports that the White House is prepared to halt military operations against Iran, raising hopes for a diplomatic resolution to the five-week-old conflict. The S&P 500 also surged 2.3% in its best session since the war began, further supporting the Australian Dollar's recovery after weeks of pressure from surging energy costs and growth fears [1].
Meanwhile, NZD/USD surged to trade near the 0.5750 region, starting the Asian session with a bullish bias on Wednesday. The US Dollar lost momentum after Iran’s Islamic Revolutionary Guard Corps (IRGC) threatened to target US companies operating in the region, including Microsoft, Apple, Google, Intel, and Boeing, as retaliation for recent attacks. This threat triggered a shift in market sentiment and weighed on the USD, despite its typical safe-haven appeal. US President Donald Trump reportedly told aides he is willing to end the war against Iran even if the Strait of Hormuz remains largely closed, further influencing investor behavior and prompting a trimming of USD exposure [2].
From a broader perspective, MUFG’s Senior Currency Analyst Michael Wan notes that higher oil prices and potential energy shortages are increasingly weighing on Asian FX. Energy-sensitive currencies such as INR, KRW, and PHP have already weakened, with the next phase expected to be driven more by growth concerns and risk aversion if the Iran conflict drags on. Wan suggests that growth-sensitive and current account deficit emerging market currencies, including INR, PHP, IDR, and KRW, may underperform further, while CNY is expected to show greater relative resilience within the region. MUFG continues to advocate a cautious stance and recommends hedging opportunities for energy-sensitive Asian currencies [3].
On the policy front, the Reserve Bank of Australia (RBA) hiked rates for a second straight month to 4.10% in March, citing renewed inflation pressures partly driven by the Middle East energy shock. RBA Assistant Governor Christopher Kent warned that a prolonged conflict could push short-run neutral rates higher and force an even more restrictive policy stance. The Federal Reserve held the federal funds rate at 3.50% to 3.75% in March, with Chair Jerome Powell citing elevated uncertainty from the conflict. Recent US data was soft, with the Chicago PMI falling to 52.8 against a consensus of 55, and JOLTS dipping to 6.88 million versus 6.92 million expected. Upcoming US data releases, including ADP Employment Change, retail sales, ISM Manufacturing PMI, and Non-Farm Payrolls, are expected to be closely watched, especially given thin holiday liquidity on Good Friday [1].
CONCLUSION
The Iran conflict and associated energy shock have triggered notable volatility and risk-driven moves in Asian FX and risk-sensitive currencies, with AUD and NZD rebounding as USD weakens. Analysts warn that prolonged tensions could shift market focus toward growth concerns and further underperformance of energy-sensitive currencies, while CNY may remain relatively resilient. Central banks and investors are adopting a cautious stance, closely monitoring developments and upcoming economic data for further direction.