- Oil prices rise despite reports of US-Iran communication
- Gold hovers around $5000, as equities benefit from Nvidia CEO commentary
- RBA hikes and maintains hawkish stance but split vote keeps aussie at bay
- Dollar/yen flirts with 160 as Japanese authorities consider intervention
Oil edges higher
Oil is rising towards the $100 area at the time of writing, as US President Trump’s call for a joint effort to secure the Strait of Hormuz has fallen flat. Analysts interpret his request for help as evidence of a lack of strategy following the initial phase of the conflict – did Trump actually expect Iran to fold quickly, as in Venezuela? – while his failure to convince allies may signal a weakening of US influence.
With Israel continuing its military operations against both Iran and Lebanon, the US is likely to remain committed to the cause, with Trump maintaining the aggressive rhetoric and advertising his ‘win’. However, following reports about direct communication between US Middle East envoy Steve Witkoff and Iranian Foreign Minister Araghchi, there seems to be a behind-the-scenes attempt to find a way out. This was denied by the Iranian side, but there is no smoke without fire, with Trump also stating that Iran wants a deal.
This window of communication along with Nvidia CEO’s upbeat commentary about revenue reaching at least $1 trillion through 2027 helped US equities recover from Friday’s lows. However, it is evident that sentiment remains fragile, with implied volatility for most major stock indices remaining close to recent highs.
That said, despite the geopolitical developments, equities have not fallen off a cliff, potentially revealing investor belief that the conflict will be quickly sorted out. The S&P 500 index continues to flirt with the 200-day simple moving average (SMA), and an escalation in the Middle East could quickly push it below this key support area for the first time since the April 2025 reciprocal tariff shenanigans.
This expectation of a swift resolution along with the persistent dollar strength could also explain the performance of gold, which is struggling to remain above the $5,000 level, completely ignoring the possibility of an unprecedented escalation in the Middle East and increased chances of an inflation surge down the line.
RBA hikes but voting results confuses aussie bulls
Amidst this environment, the RBA met expectations by announcing its second consecutive rate hike, pushing its cash rate to 4.1%. While both the statement and the press conference were hawkish, the 5-4 voting result did not allow the aussie to rally against the US dollar, although Governor Bullock justified it as a timing difference, not a direction disagreement. The pair is hovering around the 0.7063 area at the time of writing, with the key event being tomorrow’s Fed meeting.
Interestingly, Governor Bullock also highlighted that “risks are more skewed to upside for inflation than to the downside for employment”, which could be the theme of the week as another six central bank meetings are scheduled.
The euro, which has been hammered since the start of the Middle East conflict, could benefit from a hawkish tone at Thursday’s ECB meeting, but this appears to be a low probability scenario at this stage. Notably, Friday’s bearish breakout from the 10-month long rectangle did not last, with euro/dollar hovering a tad above the 1.1480 region at the time of writing.
Focus on both the Swiss franc and the yen
Meanwhile, both the Swiss franc and the yen are being closely monitored as the former has been boosted by the prevailing risk-off sentiment, while the latter has been weakening aggressively in the same period. Both the SNB and the BoJ will meet on Thursday, but rate changes remain a low-probability scenario, leaving intervention on the table for both central banks. The BoJ is seen closer to such an action as dollar/yen is dangerously flirting with the 160 level, which appears to be a line in the sand for the Japanese authorities.