Asian currencies dragged lower by oil spike, with Fed path and Middle East trajectory key risks ahead

[SINGAPORE] Escalating tensions in the Middle East have pushed major Asian currencies lower against the US dollar over the past week, as oil prices surged and investors sought the greenback as a safe haven.

However, analysts said energy prices – the main transmission channel through which the conflict involving Iran, the United States and Israel affects the global economy – are unlikely to shape the region’s currency trajectory over a sustained period.

“Unless the shock is severe and sustained, we do not expect energy prices to influence the region’s medium-term currency path,” said Vishrut Rana, a senior economist at S&P Global Ratings.