Asian currencies weaken as U.S.-Iran conflict escalates

Bank Indonesia has renewed its commitment to defend the rupiah as escalating conflict between the United States and Iran sends investors fleeing to the U.S. dollar and rattles currencies across Southeast Asia. The central bank's pledge comes as the rupiah faces fresh depreciation pressure following U.S. military strikes on more than 80 targets in Iran and the revocation of a license permitting Iranian oil sales.cnn+1

Renewed Geopolitical Shock

The latest round of U.S. strikes, launched on Tuesday in response to Iranian attacks on three commercial vessels transiting the Strait of Hormuz, has jolted global markets. President Donald Trump declared that an interim accord to end hostilities with Iran was "over" on Wednesday after Tehran retaliated with strikes on targets in Bahrain and Kuwait.nytimes+3

The U.S. dollar index has remained firm above the 100 level, while U.S. Treasury yields have climbed, with the 10-year yield rising to 4.55%. Brent crude rose 3% following the strikes, its largest daily increase since early June.mufgresearch

Indonesia's Currency Defense

Governor Perry Warjiyo has repeatedly stated Bank Indonesia would go "all out" to stabilize the rupiah, a phrase he first used in May when the currency hit a historic low. Since then, the central bank has raised rates by a cumulative 100 basis points in three moves, bringing its benchmark seven-day reverse repurchase rate to 5.75%.businesstimes+2

Indonesia's foreign exchange reserves stood at $145.6 billion at the end of June, up from $144.9 billion in May, bolstered by tax revenues despite ongoing intervention costs. The rupiah had stabilized in the 17,700–17,963 range in late June and early July after breaching 18,000 per dollar in early June, but the renewed Middle East conflict threatens to undo that progress.xinhuanet+2

Ringgit Faces Similar Headwinds

The Malaysian ringgit also weakened against the greenback on Wednesday, opening at 4.0745/0830 per dollar compared with Tuesday's close of 4.0685/0735. The softer performance came after U.S. military strikes and the Treasury Department's revocation of the Iranian oil waiver raised concerns over renewed market uncertainty. Despite the dollar pressure, the ringgit strengthened against major and regional currencies, including the euro, British pound, and Japanese yen.freemalaysiatoday+2

Analysts note that while domestic fundamentals and central bank responses may drive divergent performances across the region, external pressures on Asian currencies are likely to persist in the near term as long as geopolitical risks remain elevated.mufgresearch