Asian currencies broadly strengthened and emerging Asian equities extended their record-breaking rally on Thursday as optimism grew that the United States and Iran could reach a deal to end their nearly 10-week war, easing fears of continued oil supply disruptions through the Strait of Hormuz.
Oil Prices Tumble as Deal Expectations Rise
Brent crude fell sharply this week after Axios reported that the US believes it is close to an agreement with Iran on a one-page memorandum of understanding to end the conflict. The framework would include both sides lifting restrictions on the Strait of Hormuz, which typically handles one-fifth of the world’s oil supply. Brent crude dropped below $100 per barrel on Wednesday for the first time in weeks, after plunging nearly 8% in a single session. On Thursday, prices hovered around the $100 mark.
The US expects a response from Iran within 48 hours regarding the 14-point memorandum. Key points include both countries lifting their respective blockades on the Strait of Hormuz in exchange for a US removal of sanctions and an Iranian commitment to a 15-year moratorium on uranium enrichment. President Donald Trump told reporters on Wednesday that Iran “wants to make a deal” and predicted the war would be “over quickly”.
Record Highs Across Asian Markets
South Korea’s Kospi surpassed the 7,000 mark for the first time on Wednesday, closing 6.45% higher at a record 7,384.56. Taiwan’s Taiex closed above 41,000 for the first time, extending a record run driven by semiconductor heavyweights including TSMC and MediaTek. The MSCI broadest Asia-Pacific index outside Japan also rose to an all-time record high.
The rally has been fueled by a combination of surging demand for AI chips and fading geopolitical risk. Samsung Electronics surpassed a market valuation of $1 trillion this week, while the Kospi has risen roughly 75% year-to-date. CNN reported that the AI-driven semiconductor boom has overshadowed risks associated with the Iranian conflict.
Rupee Gains as India Benefits from Oil Retreat
The Indian rupee strengthened for a second straight day on Thursday, supported by the decline in crude prices. The currency gained 0.5% to 94.0950 per dollar as falling oil eased pressure on India, the world’s third-largest crude importer. Samy Chaar, chief economist at Lombard Odier, said “the market momentum is moving in a positive direction” and noted that declining oil prices are “good news for the equity market valuation” while also driving currency moves.
Analysts at ING said the dollar would continue to fall if an agreement is reached, with the dollar index slipping 0.1% while Asian currencies rose between 0.2% and 0.5%. However, Brent crude remains roughly 40% higher than it was in late February when the conflict started, a reminder that energy prices continue to strain the global economy even as markets price in a resolution.
