Emerging Asian currencies and shares were a mixed bag on Friday, with the South Korean won and the Indonesian rupiah weakening the most, as geopolitical tensions in the Middle East clouded investor sentiment.
The prospect of Israel retaliating to Tehran's largest-ever assault prompted safe-haven inflows, boosting the greenback, while investors will look out for a key U.S. jobs report on Friday to gauge the possibility of another large rate cut by the Federal Reserve.
The dollar index, which measures the U.S. unit against six peers, was last at 101.88.
"Despite a boost for risk assets emanating from the Fed's 50bp (basis point) cut and China stimulus, rising geopolitical risks and higher oil prices may act as a stumbling block," analysts at Barclays wrote.
"In the event of a supply shock that sends oil prices up by around 20% it would send the USD higher against EM currencies, especially the KRW."
Rising oil prices are detrimental for emerging Asian currencies, except Malaysia, as they weigh on the current account deficits of these nations, which are net oil importers.
Oil prices were little changed on Friday, but remained on track for strong weekly gains, amid a deepening Middle East conflict that could disrupt crude flows.
The South Korean won led losses, dipping as much as 0.9%, and was poised for its worst session since early August.
Other currencies, such as the Malaysian ringgit, Indonesian rupiah, Taiwan's dollar and the Singapore dollar traded between flat and 0.5% lower.
The ringgit was set for its worst week since March 2020, while the rupiah was headed for its worst weekly performance since April.
Taiwan markets reopened on Friday after the impact of Typhoon Krathon.
The Philippine peso, however, rose about 0.3%. The nation's inflation accelerated at its slowest rate in more than four years in September. This was preceded by easing inflation prints in South Korea and Indonesia.
The Bank of Korea is set to meet next week, with investors pricing in a rate cut.
Central banks in Indonesia and the Philippines have already loosened their respective monetary policies.
Inflation prints from China, Thailand and Taiwan in the coming days will shape their central banks' stances on rates.
Thailand's baht, which was subdued for most of the session, rose 0.8% in tandem with gold prices.
Due to Thailand's position as a major gold trading centre in Southeast Asia, the baht tends to rise when gold prices rise, ANZ said.
"The baht's rise today is quite a surprise to see. One key factor to watch out for is the return of the pickup in the tourism season, so that could provide some flows into the Thai market," said Lloyd Chan, senior currency analyst at MUFG.
South Korean stocks rose 0.3%, while Singapore equities were flat. However, equities in Indonesia, Malaysia and Taiwan shed 0.4%-0.7%.
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