Asia FX steadies as oil surge weighs on risk appetite, yen holds gains

Asian currencies and the U.S. dollar remained relatively stable on Friday as investors considered higher energy costs and geopolitical concerns, while the yen maintained its strength following a safe-haven rally triggered by worries over global growth and technology sector valuations. The US Dollar Index hovered near 101.60 by 03:33 GMT, edging towards a three-week low and preparing for a second consecutive weekly decline.

Meanwhile, the Japanese yen (USD/JPY) rose 0.1% to 156.90 yen, after falling nearly 1% the previous day, driven by a search for safety amid worries about AI investments and Middle East tensions. The 10-year Treasury yield neared a one-month low of 4.953%, signaling a preference for safer assets due to falling yields. Oil prices, a key factor for regional currencies, stayed around $114 a barrel due to a 4% surge in Brent crude on Thursday, driven by attacks in Saudi Arabia and fears of supply disruptions.

This could lead to inflation and complicate monetary policy outlooks in energy-importing Asian countries, such as Japan, India, and South Korea. The Chinese yuan's USD/CNY and offshore USD/CNH remained flat near four-year lows. The South Korean won's USD/KRW pair dipped 0.2%, while the Singapore dollar's USD/SGD pair traded flat.

The Indian rupee continued its decline, erasing most of its earlier gains after RBI's support measures. USD/INR rose 0.3% to 95.109, after an earlier 0.4% surge. The Australian dollar (AUD/USD) edged down 0.1%. Investors awaited significant central bank decisions next week, with the U.S. Federal Reserve likely to keep rates between 3.75%-4.00% on October 28, while the European Central Bank and Bank of Japan were set to provide policy updates on October 29 and 30, respectively.

For the yen, the Bank of Japan's inflation outlook and indications of further rate hikes would be closely monitored, along with the likelihood of Japanese currency intervention.