Investing.com-- Most Asian currencies weakened on Monday, while the dollar steadied as markets feared an escalation in the U.S.-Israel war on Iran, especially after President Donald Trump issued an ultimatum to Tehran.
Regional markets also remained on edge as oil prices rose, fueling concerns over energy-driven inflation and hawkish central banks in the developed world.
The dollar index and dollar index futures both steadied in Asian trade after losing some ground last week.
Indian rupee hits record low on oil shock jitters
The Indian rupee was among the worst performers on Monday, with the USD/INR pair rising 0.3% and crossing 94 rupees for the first time ever.
India is seen as among the more vulnerable countries to disruptions in oil and gas supplies, with rising oil prices expected to weigh heavily on the rupee.
Local media reports also pointed to a brewing gas shortage in the country. India imports roughly 80% of its oil and gas consumption, with a bulk of its shipments coming from the Middle East.
Still, deeper declines in the rupee have been deterred by continued intervention by the Reserve Bank of India in foreign exchange markets.
South Korean won falls, new BOK governor seen as hawkish
The South Korea won's USD/KRW pair rose 0.2%, but traded below a 17-year high hit earlier in the session.
The won took some support from bets that new Bank of Korea Governor Shin Hyun-song was a hawkish pick for the role, and that interest rates could rise later this year.
Shin—who is most famous for predicting the 2008 financial crisis—said he will seek a more "balanced" policy approach.
But analysts viewed past statements from Shin as leaning hawkish, given that he has spoken against overlending, excessive liquidity, and inflation.
ING analysts said that the BOK under Shin could hike interest rates by as soon as July, especially as the Iran crisis presents more inflationary pressures.
Asia FX weakens with Iran escalation in focus
Broader Asian currencies largely weakened, with the Japanese yen's USD/JPY pair rising 0.1%, while the Chinese yuan's USD/CNY pair added nearly 0.4%.
The Singapore dollar's USD/SGD pair rose 0.1%, while the Australian dollar's AUD/USD pair slid 0.6%.
Markets remained on edge over an escalation in the Iran war, especially after Trump said Tehran had 48 hours to reopen the Strait of Hormuz or face U.S. strikes on key energy infrastructure.
Tehran responded by threatening to attack key energy and water infrastructure across the Middle East, and that it would also completely shut the Strait.
Reports showed the conflict heading towards little de-escalation after it entered its fourth consecutive week, with hostilities continuing across the Middle East.