Most emerging Asian currencies and equities declined on Monday after hawkish comments from US Federal Reserve Chair Kevin Warsh increased expectations of a possible September interest rate hike, strengthening the US dollar and putting pressure on regional assets.

The moves came as investors reassessed the likely path of Federal Reserve policy. The US central bank's Federal Open Market Committee (FOMC) sets the federal funds rate, and expectations of higher US rates tend to support the dollar, which in turn weighs on emerging-market currencies. A stronger dollar makes dollar-denominated debt more expensive to service for emerging-market borrowers and can draw capital away from regional assets toward US instruments, a dynamic that has historically pressured Asian equity and currency markets during Fed tightening cycles.

Adding to the pressure on regional markets, oil prices surged amid escalating tensions between the United States and Iran. Higher oil costs are a particular concern for energy-importing economies across Asia, which rely heavily on imported crude. Sustained elevated oil prices can widen trade deficits and feed into import costs for fuel-importing nations, compounding the currency weakness already stemming from dollar strength. Markets are likely to watch upcoming US inflation data and FOMC communications for further signals on the rate path, as well as developments in US-Iran tensions for their effect on oil supply.

Source: Economic Times Markets