Oil

Oil prices fell sharply, as the threat of a wider regional conflict did not materialise despite US action against Iranian nuclear sites. Crude oil prices retreated from a high of over US$80/barrel in late June amid signs that the Iran-Israel ceasefire is holding. It is too early to expect any discussion on Iranian sanction relief. However, President Donald Trump did cause some confusion when he made some unexpected statements that China can continue to purchase Iranian oil. He also said that his commitment to the “maximum pressure” campaign, aimed at curbing Iran’s oil exports, remains in place.

If there is a lasting ceasefire, we see room for Brent oil to revisit the May low of US$60/barrel. Should the ceasefire be maintained, this could lower the risk of severe damage to oil infrastructure in the region or a closure of the Strait of Hormuz, a critical gateway for global oil shipments. This would see the geopolitical risk premium erode. Oil prices could eventually fall back to pre-13 June levels in the mid-US$60s/barrel, helped by OPEC+ using its spare capacity to bring back volumes on an accelerated timeframe, as well as the seasonal drop in oil demand after summer.

Precious metals

Gold’s recent rally had unwound as geopolitical risks eased. Gold could slip back into consolidation mode. However, we remain bullish on gold in the medium term and expect gold prices to rise to US$3,900/ounce in a year’s time. The optimism in risk assets, reinforced by hopes of friendly US inflation data and a mild softening in the job markets - paving the way for earlier Federal Reserve rate cuts, can lessen the demand for safe havens like gold. High gold prices are also starting to hurt demand, especially demand for jewellery. Nevertheless, we expect that gold’s price dip will stimulate demand for hedging against the risk of a US recession. Gold is also likely to remain well supported by still-elevated central bank buying.

Gold is not cheap, but we see its safe haven appeal to be the most compelling relative to the Japanese Yen and Swiss Fran. Hedging value for geopolitical risk remains an important part of why we are positive on gold, even though it is hard to time geopolitical events. A recent World Gold Council (WGC) survey supports our view that gold demand from central banks will remain structurally higher. A record 43% of central banks plan to increase their gold reserves over the next 12 months, according to the survey. This is up from 29% a year ago and is the highest level seen in eight years, according to WGC data.

Currency

For the month of June, the US Dollar (USD) initially saw mild demand on geopolitical escalation in Middle East, but demand quickly faded after a ceasefire in the Israel-Iran conflict. Subsequently, the USD took a turn lower, with the USD Index (DXY) testing more than a three-year low into month-end. Some of the factors that contributed to renewed USD selling pressure include tentative optimism about trade talks, prospects of rate cuts by the US Federal Reserve (Fed) and softer US data (reinforcing the view that US exceptionalism is eroding), while geopolitical concerns took a back seat. Recent comments from Fed officials have indicated that a rate cut in July is a possibility. In the near term, reciprocal tariffs remain a key focus, as markets watch for potential new deals or extensions. We continue to expect the USD to trade weaker as the USD diversification/re-allocation trend takes centre-stage while potential for a Fed rate-cut cycle comes into focus in 2H2025.

The Euro (EUR) extended its run higher as the USD lost ground. Germany’s government recently approved its draft budget for 2025, clearing the way for a big boost in spending on defence and infrastructure. Defence spending is set to more than double to €152.8 billion by 2029. In addition, NATO members have agreed to ramp up military spending to 5% of GDP. All of this supports our view that fiscal policy will be a tailwind for German growth in the years ahead, and that should be a positive for the EUR as well. A risk factor on the radar is EU-US tariffs. Potential repercussions if the US imposes significant tariffs on EU goods include a reduction in EU exports to US, growth concerns about the EU and deeper ECB rate cuts to support growth. Technically this can hold back the EUR’s rally but if the “sell USD” trade remains the dominant theme, then the EUR may still find support.

The exchange rate between the Australian Dollar and the USD (AUDUSD) rose as an Israel-Iran ceasefire supported risk sentiment while tentative trade deals between the US and a few nations including China and the UK, and dovish Fed rhetoric, undermined the USD. More broadly, Australia’s growth remains intact, but the pace of recovery is expected to moderate, due to weaker global demand, trade related uncertainties and softer domestic consumption. Slower inflation and a less tight labour market allows the RBA to continue it gradual path of easing monetary policy. This should be perceived as one of the means of supporting growth. The AUD is a high beta currency which can be exposed to geopolitical shocks, swings in the Renminbi (RMB), equity market sentiment, and global growth prospects. The interplay of a dovish RBA and tariff uncertainty are factors that will restrain the AUD from heading higher. On the other hand, a softer USD trend could cushion the impact on the AUD. The bias remains for the AUD to trend gradually higher as USD softness returns and markets re-focus on potential Fed rate cuts in the months ahead.

The relatively strong performance amongst Asian currency markets was largely due to the "sell USD" trade, signs of foreign inflows returning, prospects of a de-escalation in trade tensions as the US engages in trade talks with a handful of Asian countries including China, South Korea and Japan, as well as chatters of currency being discussed with some Asian countries during bilateral trade talks with the US. “Sell USD” trade is due to a range of reasons from US policy unpredictability related to Trump’s tariffs, to an erosion of US exceptionalism and increasing concerns over US fiscal health. These factors can continue to hurt sentiment towards the USD. As the confidence in the USD starts to waver after geopolitical tensions fade, exporters in the region and asset managers will continue to reduce their USD holdings. Asian currencies can continue to appreciate so long as USD softness persists owing to US-centric risks and if global growth outside US holds up. But the momentum could be jeopardised if US exceptionalism makes a comeback, if global growth shows further signs of weakening, or if there is a systematic crisis/geopolitical setback.

USDCNY - the exchange rate between the USD and the onshore Renminbi (RMB) continued to trade in a subdued ranges near its recent lows. A consistent trend of CNY fix being set stronger, relatively upbeat PMIs, confirmation of a trade deal framework between the US and China, as well as a softer USD environment should continue to point to a more constructive outlook for the RMB. But at the same time, we believe policymakers will continue to pursue setting the USDCNY fix at a "measured pace" to also help anchor relative stability in the RMB overall. Any sharp or rapid RMB appreciation may risk triggering exporters rushing to sell USD holdings and that cycle (if it happens) may result in excessive RMB volatility and strength. This may hurt exporters’ margins and have wider repercussion on deflation. A more gradual pace of appreciation could repair investor sentiment and encourage a return of foreign inflows.

The exchange rate between the US Dollar and the Singapore Dollar (USDSGD) continued to trade near a decade low. A combination of tentative progress on trade talks, a soft USD environment, a stronger RMB and a de-escalation of geopolitical tensions were some factors that undermined the pair. On the upcoming MAS policy meeting in July, we are of the view that there may be little urgency to ease after two back-to-back easing in January and April this year. A joint statement by the MAS and MTI noted that imported inflation should remain moderate. Domestically, enhanced government subsidies for essential services are likely to dampen services inflation. Overall, core and headline inflation are projected to average 0.5 – 1.5% for 2025 (unchanged from the previous MAS-MTI statement). Nevertheless, earlier downgrades to growth and inflation projections for 2025 alongside a highly uncertain external environment suggests that the door remains open for further easing, should macroeconomic conditions deteriorate further.