OCBC’s Sim Moh Siong argues that recent risk-on moves following the US‑Iran understanding have only produced a modest pullback in US yields and the Dollar. He highlights AI-driven US growth, Fed event risk and Oil dynamics as supporting USD resilience. The bank remains neutral on the Dollar and prefers FX cross trades over outright USD shorts.

USD resilience despite risk-on backdrop

"The limited pullback in US yields and a resilient USD suggest markets remain cautious on hawkish Fed risks. Strong AI-driven investment continues to support labour demand and reinforces the resilient US growth outlook relative to peers. Positioning also looks constrained ahead of this week’s FOMC meeting, reducing appetite to sell the USD into a key policy event."

"Oil dynamics also limit USD downside. Brent has fallen to around USD83 per barrel, near many year-end forecasts. We expect Brent to drift towards USD80 by year-end, with risks skewed higher."

"Limited USD Pullback: Energy prices fell sharply and risk assets rallied after the US and Iran agreed on a memorandum of understanding on 14 June, with signing targeted for 19 June. US yields and the broad USD eased only modestly, despite a sharp rebound in EM oil importer currencies such as IDR, INR and PHP."

"While a US-Iran agreement is supportive, durability remains untested. Even if the Strait of Hormuz reopens, normalisation will be gradual. Mine clearance, insurance reinstatement, restarting shut-in production and precautionary stockpiling are likely to slow further downside in oil prices."

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