Asian financial markets began the week under pressure as escalating oil prices and heightened geopolitical tensions between the United States and Iran triggered broad declines in equities and currency values across the region. The Indian Rupee (INR) depreciated against the US Dollar (USD), with the USD/INR pair rising 0.15% to near 95.95, attributed to a 2.22% surge in MCX Crude Oil prices to Rs. 9,045 in the opening session [1]. The Reserve Bank of India (RBI) continued its intervention in both spot and Non-Deliverable Forwards (NDFs) markets to support the rupee, with traders noting daily interventions aimed at maintaining a firm floor under the currency [1].
The Indian equity markets experienced notable declines, with the NIFTY 50 falling by 1.25% to 22,855 and the BSE Sensex dropping over 1.30% to 72,945, driven by concerns over US-Iran tensions and rising oil prices [3]. Volatility is expected to remain elevated as traders approach the month-end expiry of Nifty and Bank Nifty contracts [3]. Other Asian indices also suffered losses: Japan's Nikkei 225 slipped 0.06% to 66,330, Shanghai dropped 1.75% to 3,820, Shenzhen fell 3.35% to 12,870, Taiwan's Taiex declined 0.28% to 48,025, and South Korea's KOSPI tumbled 2.15% to 6,925. The Hong Kong Stock Exchange was an exception, rising 0.65% to 24,665 [3].
Geopolitical developments played a central role in market movements. US President Donald Trump rejected Iran's proposal to reopen the Strait of Hormuz, stating that Tehran was desperate to make a deal, but talks are expected to resume this week [2][3]. Trump expressed confidence that the conflict with Iran would conclude soon and suggested additional military strikes before the midterm elections are possible [1][2]. Iran's Foreign Minister Abbas Araghchi indicated openness to "real diplomacy" but warned of readiness for an "apocalyptic war" if attacked again [1].
Elevated US Treasury yields, with the 10-year yield near a 19-year high of 5.23%, further pressured risk assets [1]. Market expectations for a Federal Reserve rate hike in October have increased, with CME FedWatch Tool showing a 65.9% probability, up from 57.6% a week ago and 9.4% a month ago [2]. Analysts at Commerzbank noted that year-to-date CPI inflation in India averaged 3.8%, below RBI's forecast of 5.0%, but cautioned that persistent cost pressures and higher global crude prices pose upside risks to inflation, suggesting the RBI will maintain a cautious stance [1].
The Indonesian Rupiah (IDR) also faced selling pressure, with USD/IDR trading around 17,980, driven by robust foreign-exchange demand among importers and ongoing portfolio outflows [2]. Traders remain cautious ahead of key economic releases in Indonesia, including August trade data, September inflation figures, and manufacturing metrics [2].
CONCLUSION
Rising oil prices and US-Iran geopolitical tensions have triggered broad declines in Asian equities and pressured regional currencies, notably the Indian Rupee and Indonesian Rupiah. Central banks, including the RBI, are maintaining a cautious stance amid inflation risks and elevated US yields. Market volatility is expected to persist as geopolitical uncertainty and expectations for further US rate hikes continue to influence investor sentiment.