MSCI's EM currencies gauge, which is heavily weighted towards Asia, has gained 0.89% since the start of the U.S.-Iran war. A corresponding gauge for currencies in the oil-exporting economies of Latin America .MILA00000CUS, on the other hand, has jumped 5.11%.
Disruption in the Strait of Hormuz, a crucial waterway for oil shipments, showed little sign of easing as Washington and Tehran remained locked in a rhetorical battle.
U.S. President Donald Trump responded to Iran's conditions for a peace deal with his own demands that Tehran pay compensation for people killed in wars, attacks and protests.
The closely watched U.S. inflation report for July could also put the dollar back in the driver's seat, at the expense of EM currencies, if data shows price pressures were hotter-than-expected.
"We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations," said Jonas Goltermann, chief markets economist at Capital Economics.
Members of the BRICS group of nations are discussing potential linkages between their respective fast payment systems and central bank digital currencies, Reserve Bank of India Governor Sanjay Malhotra said at an event on Tuesday.
The move could potentially reduce the organization's reliance on the dollar. The BRICS group includes Brazil, Russia, India, China and South Africa.
MSCI's index for EM stocks .MSCIEF fell 0.12%. Equities in South Korea .KS11, which has become emblematic of the sharp swings in AI sentiment, rose 0.73%.
Taiwan's stock benchmark .TWII rose 0.43% and was trading at its highest level in nearly three weeks.
Foreign investors sold Asian equities on a net basis for a ninth consecutive month in July, with heavy selling in Taiwan and South Korea as concerns over AI spending and chip demand weighed on the technology-heavy markets.
Singapore stocks .STI hit a record high after the city-state hiked its annual growth forecast on an AI-powered boost.
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