USD: Oil-driven support reshapes path – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong highlight that higher Oil prices and safe-haven flows have re-anchored the Dollar, reversing expectations for a steady USD decline. They now see a stronger USD in coming months, with DXY drifting slightly lower over the next year but remaining supported by resilient US growth, a stabilising labour market and a higher-for-longer Fed stance.

Oil shock shifts Dollar trajectory

"Oil Re-anchors USD: We have revised our FX outlook to favour a stronger USD in the near term. At the start of the year, we expected a gradual USD decline, driven by US policy uncertainty, improving global growth, and stretched valuations. The sharp rally in oil has upended that view and reasserted USD support."

"The March US employment report surprised to the upside, pointing to a stabilising labour market. That reduces the likelihood of further Fed easing and favours an extended policy hold, consistent with the hawkish repricing of rate expectations since the onset of the US–Iran conflict."

"Over the past week, sentiment improved on de-escalation hope. Brent retreated from early-week highs near USD119/bbl, hawkish central bank rate expectations were pared back, and the USD traded mixed versus G10 peers."

"Should credible de-escalation emerge, we expect the USD to resume a shallow depreciation trend, as easing energy risks would favour non-US economies and global risk assets."

"A softer USD remains possible later in the year if oil prices fall meaningfully in 2H26. Even then, downside should be contained. US growth remains resilient, and the USD has recently reaffirmed its safe-haven role—offsetting, rather than amplifying, equity drawdowns."

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