US Dollar (USD) continued to trade near recent lows as markets navigate higher oil prices owing to geopolitical tensions, tariff uncertainties and central bank meetings this week. Dollar Index (DXY) was last at 98.17 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
Focus this week is on FOMC
“USD’s bounce on Friday owing to geopolitical escalation proved short-lived as ‘sell USD’ trade came back with a punch. EUR broke above 1.16-handle briefly overnight, AUD and NZD reclaimed 0.65, 0.60 handle and in AxJ space, TWD strengthened. Gold prices eased overnight as tensions appeared to ease slightly. Trump yesterday said that Iranian officials called him to discuss the situation. But this morning, Trump said ‘everyone should immediately evacuate Tehran’. He also hinted to reporters that there would be more developments in the Middle East as soon as he leaves the G7 meeting (to return to US).”
“White house officials just indicated a proposal this week with Iran on topics relating to nuclear deal and ceasefire. Geopolitical development remains fluid and deserves further monitoring. De-escalation would likely weigh on the dollar and bring support back to risk proxies but if tensions worsen, high-beta FX such as AUD and NZD may trade on the back foot. Also, oil prices may risk going higher should tensions worsen dramatically. This may dampen the momentum in some AxJ FX, especially net oil importer FX, including INR.”
“Daily momentum has a mild bearish bias but RSI shows signs of rising from near oversold conditions. Resistance at 99 levels (21 DMA), 99.60 (50 DMA). Support at 97.60 (recent low). Focus this week is on FOMC (Thursday 2am SGT). Status quo likely, but all eyes on the dot plot and press conference. Markets look for 2 cuts by yearend. If the Fed signals just one cut (last dot plot looks for 2 cut) or pushes back easing expectations, then USD could get another lift, but anything less hawkish/more dovish could trigger USD selling.”