We continue to favour gold as a hedge against inflation and US fiscal sustainability concerns, and a beneficiary of safe haven flows, as the outlook for the US Dollar remains weak.

Vasu Menon
Managing Director
Global Wealth Management
OCBC Bank

Oil

Oil prices fell ahead of the Trump-Putin summit in Alaska on expectations that sanctions on Russian crude could be eased. But oil prices firmed back as early optimism for a Ukraine peace deal was curtailed following the inconclusive Trump-Putin summit. There has been little progress on the sticky territorial and security guarantee issues for now. Ukrainian strikes on Russian energy infrastructure also contributed to firmer oil prices. Ukraine’s attacks in response to Russia’s advances in the conflict and its pounding of Ukrainian gas and power facilities, have disrupted Moscow’s oil processing and exports and created gasoline shortages in parts of Russia. Meanwhile, the US implemented the additional 25% Russian penalty on Indian imports from 27 August, as planned, taking the announced tariff rate to 50%. India’s oil purchases have increased significantly over the last three years, with Russia accounting for 35% of its total imports.

We expect a moderate decline in oil prices ahead and stick to our 12-month Brent forecast of US$65/barrel. The oil market is likely to remain well supplied. OPEC+ has decided to bring back 547,000 barrel per day of oil in September, completing the unwinding of its 2.2 million barrel per day in output cut. The focus will be whether there will be a pause in bringing back additional barrels in 4Q2025. Oil demand appears mixed, with strong refinery margins supporting robust processing. However, China’s oil demand could decelerate as the payback from front-loading exports ahead of US tariffs materialise.

Precious metals

Gold had consolidated in the US$3,200-3,450/ounce range since April. Price gains that were earlier built on stretched speculative longs have given way to renewed gains from ETF inflows. We forecast gold to be at US$3,600/ounce by end-2025 and US$3,900/ounce in a year’s time.

Focus has shifted from tariff uncertainty to watching macroeconomic data. Fed Chair Jerome Powell’s remarks at Jackson Hole were more dovish than expected. The key message was that continued weakness in payrolls would be enough to resume cutting rates. We expect the Fed to cut rates in the coming months after the recent weak US jobs data. Non-yielding assets such as gold would benefit from lower interest rates and a subsequent weaker USD.

Political suasion on US monetary policy is reaching new levels and may be a positive for gold if it is seen as influential. Following President Trump’s announcement of the decision to fire Fed Governor Lisa Cook, she has indicated that she will challenge the decision in court and seek judicial review. Challenges to Fed independence pose downside risks to the US Dollar, and by implication upside risks to gold, in our view. This is due to both concerns around US institutions, and to the read-through to lower front-end US yields and higher inflation expectations.

Currency

The US Dollar index (DXY) closed softer in August after appreciating in July. US Federal Reserve (Fed) Chairman Jerome Powell’s speech at Jackson Hole and US President Donald Trump’s dismissal of Fed Governor Lisa Cook were some of the factors that weighed on US Dollar (USD). On the former, Powell’s expression of an openness to cut rates and his acknowledgement of downside risks to the labour market, suggest that a September rate cut is more likely than not, even though he was non-committal in his speech. Nevertheless, given the recent weak US jobs data we expect the Fed to cut rates in September, October and December this year. While it remains unclear if Cook will remain on the Fed’s Board of Governors, the latest move by Trump reflects concerns over Fed independence and how the composition of the Fed may result in the US central bank becoming more dovish going forward. We continue to expect the USD to trade softer as the Fed potentially resumes easing while US exceptionalism fades. The USD has room to fall as long as the broader risk-on sentiment stays intact and growth conditions outside US remains supported. Nonetheless. we believe the USD’s decline is not linear and likely to be bumpy, driven by data surprises, market expectations of Fed rate cuts and tariff risks. USD re-allocation momentum can pick up when the USD‘s decline accelerates. More broadly, US policy unpredictability, and concerns of about the rising trajectory of US debt and deficits in the medium term, should continue to underpin the broad (and likely bumpy) decline in the USD.

The Euro (EUR) managed to trade firmer for the month of August despite a pickup in political risk. While Dutch caretaker Prime Minister (PM) Dick Schoof and his cabinet survived a no-confidence vote on 27 August, the Dutch government is still holding early General Elections on 29 October. At the time this was written, the French PM François René Jean Lucien Bayrou has called for a confidence vote on his government’s budget on 8 September, saying that he needs backing from parliament for austerity measures to reduce the public debt. He has proposed to freeze most public spending, introduced new tax on high income earners, scrap two public holidays (Easter Monday and end of WW2 in Europe) and plans to increase defence spending. Recall that last year, a no-confidence vote gamble (although not on the budget) saw the exit of former PM Michel Barnier. Political risks in France and Netherlands deserve monitoring as they may have short term implication for the EUR although broader fundamentals should still support the EUR. On tariffs, there are signs that the EU and US are potentially getting closer to a better deal. On 21 August, the US and EU issued a joint statement outlining their new trade framework. The deal confirms a 15% tariff ceiling on most EU goods, with a non-stackable clause that prevents additional duties being layered on top. Recent reports suggest that the EU is willing to waive all tariffs on industrial imports from the US in exchange for lower duties on its automobile exports to the country. The US had earlier indicated that its blanket 15% tariff rate would apply to auto and auto parts imported into the US from the EU, back-dating to 1 August, if the EU passes legislation removing all tariffs on US imports by the end of this month. Overall, we remain constructive on the EUR’s outlook.

The exchange rate between the USD and Japanese Yen (USDJPY) closed softer in August, tracking the decline in the USD. At Jackson Hole, BOJ Governor Kazuo Ueda spoke about wage growth spreading from large enterprises to SMEs, and barring a major negative demand shock, he expects the labour market in Japan to remain tight and to continue to exert upward pressure on wages. We believe that BOJ is set to normalise policy. A divergence in Fed-BOJ monetary policy should underpin the broader direction of travel for the USDJPY. Elsewhere, we are on the lookout for the release of the election review report, which should be ready by early-September. This report is to inform the LDP party on who will take responsibility for the upper house election setback in July. Some clarity on the political outlook may also be supportive of the JPY.

The exchange rate between the USD and the Chinese Renminbi (RMB) traded in the offshore market (USDCNH) fell nearly 1% in August and it is now trading at its weakest level since November 2024. The move reflects a confluence of drivers including persistent strength in the daily CNY fix, renewed foreign inflows into Chinese equities in recent weeks, and a softer USD backdrop as the Fed prepares to cut rates. There appears to be a consistent and deliberate trend of setting the daily CNY fixing rate slightly stronger, but at a measured pace. Since mid-April 2025, the USDCNY fixing rate has declined by approximately 1070 pips (a pip is one-hundredth of 1%), averaging about 11 pips per fix. This is a marked departure from 2023–2024 and the early part of 2025, when the fix was used defensively to cap RMB depreciation pressure. Today, the spot–fix gap is being driven by a stronger fix rather than RMB weakness, potentially signalling policymakers’ intent to guide USDCNY spot lower but in a measured manner. A gradual appreciation in the RMB and continued gains in the domestic equity markets can help to restore investor confidence and further encourage a return of foreign capital inflows. Over the past few weeks, there was net foreign equity inflow into China. These factors, alongside the possibility of the Fed resuming rate cut should continue to be positive for the RMB. There could be further room for the RMB to appreciate should China’s economy see more sustained stabilisation.

The exchange rate between the USD and the Singapore Dollar (USDSGD) fell about 1% in August, largely tracking the renewed softness in the USD while gains in the RMB have also resulted in positive spillover effects onto SGD. The recent Singapore July inflation report saw core inflation easing to 0.5% YoY (versus 0.6% YoY previously). On the inflation outlook, the MAS continued to flag both upside and downside risks while core inflation forecast is projected to average 0.5 – 1.5% in 2025 (unchanged from the previous forecast). We believe that the door to ease policy remains open if the growth-inflation dynamics worsens more than expected, but for now, there is no hurry to ease or jump the gun. The Singapore Dollar Nominal Effective Exchange Rate ($NEER) remains largely steady, which implies limited room for the SGD to strengthen unless its peers appreciate significantly more. For the month ahead, expect external drivers, including Fed policy, USD volatility and moves in the RMB to have a greater bearing in influencing the USDSGD.