The dollar was steady in Asian trading on Monday, while Asian currencies remained within a narrow range as uncertainty over the Middle East war and the path of US interest rates kept markets on edge.
Holidays in Japan and mainland China kept overall trading volumes low. The yen rose further after alleged government intervention significantly boosted the currency last week.
The Australian dollar is hovering near four-year highs ahead of a widely expected interest rate hike by the Reserve Bank on Tuesday.
Broader currencies showed a limited reaction to US President Donald Trump's statement that the United States would launch an operation to assist ships transiting the Strait of Hormuz, and that indirect talks with Iran were continuing.
The dollar is stable after Federal Reserve Secretary Kashkari declined to rule out raising interest rates.
The dollar index and dollar index futures settled slightly above 98 points on Monday.
Minneapolis Federal Reserve President Neel Kashkari said on Sunday that the prolonged conflict with Iran has increased the risk of higher inflation, limiting the central bank's ability to provide clear guidance.
Kashkari said he could not indicate any interest rate cut, and also raised the possibility of an interest rate hike due to the uncertainty surrounding the war.
The president of the Federal Reserve Bank of Minneapolis was among an unusually large group of dissenters at last week's Fed meeting, voting against the Fed's dovish stance. The meeting was also perceived as more hawkish than markets had anticipated.
The Iran war showed no signs of abating this week as relations between Tehran and Washington remained strained and deadlocked. Concerns about the war's impact on oil prices and inflation were a key support for the dollar.
This week, the focus is also on the April non-farm payrolls data, due to be released on Friday, for further clues about the U.S. economy.
The Australian dollar is strong ahead of the Reserve Bank of Australia's interest rate hike.
The Australian dollar held steady on Monday, with the AUD/USD pair remaining near its strongest levels in almost four years.
The Reserve Bank of Australia is widely expected to raise interest rates by 25 basis points on Tuesday – its third such move this year – as it works to curb a late-2025 inflation rebound.
This recovery is expected to be exacerbated by inflationary shocks stemming from a potential war with Iran—a scenario the central bank has repeatedly warned against. Tuesday's interest rate hike will also completely reverse the Reserve Bank of Australia's short easing cycle planned for 2025.
But analysts expect an extended pause in interest rates after Tuesday's hike, as the Reserve Bank of Australia now has room to wait and see the effects of the Iran war on the economy.
The broader Asian currencies were mostly stable. The USD/KRW pair for the South Korean won fell by 0.2%, while the USD/SGD pair for the Singapore dollar declined by 0.1%.
The USD/INR pair for Indian rupees was stable, holding steady just below 94 rupees and the record highs it reached in April.
The offshore USD/CNH pair for the Chinese yuan fell by 0.1%, while the USD/JPY pair for the Japanese yen outperformed, declining by 0.5%.
The yen rose sharply last week following alleged currency market intervention by Tokyo, particularly after the USDJPY pair broke through the closely watched 160 yen level.
