Oil

The contrasting performance of commodities - bullish gold versus lacklustre oil - has been a defining feature so far this year. Despite concerns about a growing surplus in the oil market, oil prices have defied earlier fears of falling below US$60/barrel. Brent crude has been trading within a US$65-70/barrel range, supported by a stronger-than-expected drawdown in US inventories, worries over potential disruptions to Russian oil supply, and China’s stockpiling of its Strategic Petroleum Reserves. The recent rally in oil was influenced by geopolitical developments, as market participants increasingly factor in a higher likelihood of US or EU sanctions on Russia. This shift followed President Trump’s expressed support for Ukraine and his reduced willingness to make territorial concessions to Russia. Oil prices have also been bolstered by the sharper-than-expected decline in US inventories, with crude stockpiles having fallen to their lowest levels since January.

We maintain our 12-month Brent forecast at US$65/barrel. OPEC+ is likely to increase oil production again in November, which should help cap further upside in prices. After fully rolling back the voluntary production cuts of 2.2 million barrels per day (mb/d), OPEC began unwinding the next tranche of 1.65mb/d in October and is expected to continue doing so in November. Major members, such as Saudi Arabia and the UAE, are seeking to increase their market share, even if it means accepting lower prices.

Precious metals

The macro environment remains conducive to further upside for gold. We had recently revised the 12-month price target for gold to US$4,100/ounce from US$3,900 previously, due to rising ETF holdings and sustained central bank demand. The recent gold price rise has been driven by different buyers over time: since 2022, Emerging Markets central banks have increased gold purchases to diversify away from the US Dollar amid geopolitical tensions following Western sanctions on Russia. Chinese gold ETFs saw strong inflows earlier this year during tariff escalations but have been quiet recently as investors shift to Chinese equities. Currently, institutional and retail investors outside China dominate gold demand, with ex-China gold ETF holdings having seen a sharp increase.

Gold prices typically move inversely to the US Dollar (USD). However, despite the Fed’s resumption of rate cuts in September, the USD remained stable against G10 currencies, yet gold prices still rallied. This suggests that gold’s appeal extends beyond just being a hedge against the USD. Instead, it may be viewed as a safe haven from fiat currencies more broadly, as investors seek refuge amid high debt levels and challenging fiscal outlooks in Developed Markets (DM). The structural case for owning gold remains strong, especially if concerns over the US Federal Reserve’s (Fed’s) independence intensify. We have become more concerned about the risk of a more politicised Fed following the attempted dismissal of Fed Governor Lisa Cook. But the US Supreme Court’s decision to allow her to remain in office until her case is heard in January is encouraging as it reduces the likelihood of politically motivated dismissals.

Currency

The US Dollar (USD) Index traded a month of two halves for September – with weakness seen heading into the US central bank’s Federal Open Market Committee policy meeting (FOMC), and subsequently rebounding post-FOMC on cautious comments from Federal Reserve (Fed) officials. The Fed’s Austan Dean Goolsbee who is the president of the Federal Reserve Bank of Chicago, indicated that he could be less willing to support “overly frontloading a lot of rate cuts” on the presumption that inflation will just be transitory and go away, as many Midwest businesses are still concerned that inflation is not under control. Fed Chairman Jerome Powell also said that market expectations for another two rate cuts this year were far from a done deal. Elsewhere, Lorie Logan, president and CEO of the Federal Reserve Bank of Dallas, indicated that the Fed should proceed cautiously on further rate cuts and there may be little room for more cuts. Looking into 2026, we continue to expect the USD to trade moderately softer as the Fed resumes easing while US exceptionalism fades. We expect two more Fed rate cuts for 2025, following the 25 basis points (bp) rate cut at the September FOMC. The USD has room to fall as long as broader risk-on sentiment stays intact, growth conditions outside the US remains supported and the Fed stays on an easing path. In the near term, the Fed’s “risk management cut” at the September FOMC and cautious comments from Fed officials, may not be sufficiently dovish to see the USD decline in a big way. But if US data turns out to be softer-than-expected and the Fed cuts rates more decisively, then USD bears may return with more conviction.

The Euro (EUR) traded modestly firmer for the month of September despite French political risks, and it appears somewhat immune to recent headlines on geopolitics. There was a report on Russia violating the airspaces of Poland and Estonia, while Trump’s speech at the UN General Assembly indicated that any prospects for a Russia-Ukraine ceasefire remains distant. He even went so far as to say that NATO nations should shoot down any Russian aircraft that violates their airspace. It is unclear whether these remarks reflect a genuine policy shift or a negotiation tactic, but they represent some of the strongest rhetoric from Trump since his meeting with President Vladimir Putin in Alaska. In France, its new Prime Minister (PM) Sebastien Lecornu has ruled out a wealth tax and aims to cut the budget deficit to 4.7% of GDP in an attempt to get the 2026 budget approved by October. It remains early to tell if he can turn things around, but early polls show he only has a 16% positive opinion rating. Elsewhere, the Netherlands will hold General Elections on October 29. These political developments may potentially pose some sporadic downside risk to the EUR in the near term. However, the broader fundamental outlook remains supportive of the currency, suggesting a buy-on-dips approach.

The exchange rate between the US Dollar and Japanese Yen (USDJPY) closed modestly firmer after trading between a wide range of 145.50 – 149.96 in September. Political uncertainties with regards to PM Shigeru Ishiba’s resignation, the LDP election to select a new leader and the USD’s rebound post-FOMC were some of the factors attributed to the uptick.

Looking ahead, recent political developments in Japan may have an impact on the JPY in the short term. There are concerns that Sanae Takaichi’s recent election as President of the ruling LDP party may impact BOJ policy. Takaichi is a protege of former Prime Minister Abe whose “three arrows” of fiscal stimulus, monetary easing and structural reforms revived Japan’s financial markets from 2012. She will have to negotiate with other LDP factions and gain parliamentary approval before becoming prime minister. A Takaichi-led government may put pressure on the BOJ to refrain from resuming its gradual cycle of rate hikes.

She was vocal against the BOJ hiking rates last year, and on winning the recent race to become LDP President. She made it clear that the government will take the lead in setting fiscal and monetary policy, and that her priority is to reflate demand and the broader economy. There are concerns that her appointment could delay BOJ policy normalisation, and the BOJ may again hold rates steady at is October meeting. The concern may be valid but at the same time, the macro-economic conditions today versus the macro conditions during former Prime Minister Abe’s era are different. During those days, Japan was fighting deflation but today, we have already seen inflation above 2% target for more than several months. As such, a gradual pace of BOJ normalisation is still plausible given that the central bank’s rate remains relatively low. But going forward, we need to monitor how Takaichi’s proposed policies can be executed and if they will be toned down or if BOJ policy bias may be affected. Given the uncertainties, USDJPY may drift higher in the interim unless the USD is down in a significant way. However, JPY weakness could reverse when political uncertainty fades and once the BOJ proceeds with policy normalisation. Fed-BOJ policy divergence should eventually underpin the JPY.

The exchange rate between the US Dollar and Singapore Dollar (USDSGD) traded firmer for the month of September. US data and speeches by Fed officials could influence the USD’s direction and there could be a spillover effect on the USDSGD. MAS’s policy stance is another factor that could shape how the USDSGD plays in the coming months. For now, however, MAS kept its monetary policy settings unchanged for the second consecutive meeting in October, maintaining the SGD’s appreciation rate with no change to the width of the band or the level at which it is centred, after earlier easing in January and April this year. MAS also noted that the S$NEER (Singapore Dollar Nominal Effective Exchange Rate) has eased recently as appreciation pressures ebbed. Core inflation is now tipped at 0.5% for this year and to only gradually edge higher to 0.5-1.5% in 2026. The 2025 headline inflation forecast range was narrowed to 0.5-1.0% YoY. Both headline and core inflation forecasts stand at 0.5-1.5% YoY in 2026. Core inflation has benefited from fresh government subsidies for long-term care services as well as tepid imported costs (e.g. crude oil, capital, intermediate and some retail goods) and easing domestic cost pressures (as the domestic labour market conditions cool). MAS opined that while core inflation could edge down further in the near term, and bottom around September, before modestly edging up into 4Q25 and 2026, as there may be limited downside to commodity prices (namely energy) from here and domestic services unit labour cost could rise as productivity growth normalises. Our 2025 headline and core inflation forecasts are 0.7% and 0.5% YoY, followed by 1.0-1.5% for 2026. For the remainder of the year, we continue to project a mild degree of USDSGD downside.

The Malaysian ringgit (MYR) has been far more resilient compared to its ASEAN peers. Post FOMC to 1st October, the MYR fell about 0.55% versus the USD – one of the least affected amongst Asian currencies. This is in line with our favourable outlook for the MYR. Our projection for a more resilient MYR takes into consideration both domestic and external factors. On the domestic front, supportive drivers include robust Foreign Direct Investment inflows, prospects of continued foreign fund inflows, a current account surplus and the commitment to follow through with fiscal consolidation – these have provided reassurance to foreign investors. In terms of external factors, a more resilient Renminbi (RMB) is helping to anchor relative stability of the MYR. More sustained economic stabilisation for the Chinese economy, and the recovery in sentiment and confidence towards Chinese assets, including the RMB can have positive spillover effects on the MYR. Overall, we see room for the MYR to gain if foreign fund inflows into Malaysia pick-up pace, and when USD softness resumes.