OCBC strategists Sim Moh Siong and Christopher Wong stress that markets are being driven almost entirely by Iran headlines, with Oil and yields reacting to ceasefire developments. A credible de-escalation would likely see the US Dollar resume a shallow depreciation trend as lower energy risks support non-US economies, risk assets and cyclical currencies like AUD, NZD and SEK.

Geopolitics steering Dollar and risk assets

"Markets have whipsawed on every Iran-related headline in recent weeks, with little else driving price action."

"Overnight trading was volatile as looming geopolitical deadlines first stoked inflation and oil supply fears, before de-escalation hopes dragged oil prices and front-end yields lower."

"Momentum accelerated after President Trump agreed to a two-week Iran ceasefire, conditional on the Strait reopening."

"Brent fell below USD100/bbl, S&P 500 futures rallied, and the USD weakened further."

"Credible signs of de‑escalation would likely see the USD resume a shallow depreciation trend, as lower energy risks support non‑US economies and global risk assets. FX moves since the Iran conflict began have been shaped by terms‑of‑trade shifts and broader risk sentiment."

"In a de‑escalation, lower oil prices and a risk‑on environment should favour AUD, NZD and SEK over oil‑linked CAD and NOK, as well as safe havens CHF and JPY. Our preferred expression is long AUD, supported by domestic economic tailwinds. EM carry trades—BRL, MXN and ZAR—are also likely to re‑emerge if a truce holds."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)