The AI-led rebound has lifted risk appetite, though financing concerns and Middle East supply risks remain unresolved. US stocks closed higher on Monday, led by technology, with Japanese and Korean shares following overnight. China lagged despite stronger monthly industrial profits and sizeable short-term liquidity operations. The recovery remains uneven, with several central-bank decisions still ahead.
US rates continue to support the dollar. The two-year Treasury yield rose on Monday while longer-dated yields eased: the curve flattened, but yields did not fall across the board. With the dollar extending its recovery this morning, I’m putting the previous bearish USD tilt on hold. That view needs the Fed or incoming data to put relative rates clearly back against the dollar.
Oil eased initially on diplomacy, then rebounded on reports of attacks near Saudi energy infrastructure before giving back some of those gains. The scale and duration of any output losses remain unclear. A proposal to reopen Hormuz also needs to translate into an agreement that is actually implemented. Europe remains exposed to expensive gas even when crude falls. Further escalation could also weigh on NZD through weaker global growth and risk appetite, alongside the higher energy import bill for Europe.
EUR remains the clearest weak leg.
French consumer confidence fell to 80 from 85, while euro-area banks reported tighter lending standards and weaker loan demand. Some of Monday’s narrowing in French bond spreads has already reversed. Better German business expectations offer some support, but current conditions remain weak and France’s fiscal problems are unresolved. The rating relief alone does little to fix that backdrop. This reinforces the short-EUR case, without establishing that the ECB will ease.
AUD, NZD and USD lead today. CAD remains strongest over the week, although its gains today are less broad. CHF is weakest on the day; EUR is weakest over the week. GBP is also soft. JPY has recovered in recent hours but remains down on both the day and week.
NZD has lost some of its early strength. Its advantage over EUR remains clear, though the move now owes more to continued euro weakness than fresh, sustained NZD buying.
The RBNZ is expected to raise the OCR by 25bp to 3.00%, with roughly a 93% probability priced in this morning’s estimate. That leaves little surprise in the hike itself. The focus is on guidance for further tightening and whether the currency can hold its response.