Global markets are ending the week firmly in risk-on mode, but the enthusiasm is far from evenly distributed. Equity investors are aggressively embracing both AI-driven optimism and growing hopes that the United States and Iran are moving closer to a formal agreement extending the current ceasefire. Reports that negotiators have drafted a 60-day memorandum of understanding, including provisions to reopen the Strait of Hormuz and normalize Iranian oil exports, have fueled another leg lower in oil prices. Brent crude is now approaching the key $90 support level as traders increasingly price a normalization of global energy flows.
The biggest beneficiaries have been equity markets, particularly those tied to the AI theme. KOSPI and Nikkei surged to fresh record highs. Strong US futures suggest that S&P 500 and NASDAQ are going to extend their record-setting runs. European markets are participating in the rally too, but with considerably less enthusiasm. Investors appear to be focusing on the positive implications of lower energy costs, reduced shipping disruptions, and stronger technology demand. For stocks, the combination of peace optimism and AI investment is a powerful tailwind.
Foreign exchange markets, however, are telling a more nuanced story. Kiwi and Aussie are leading weekly performance tables, benefiting from the broader risk-on backdrop. New Zealand Dollar received an additional boost after senior RBNZ officials suggested today that not only is a July rate hike live, but policymakers could potentially consider a larger move if inflation risks continue to build. Aussie has also recovered despite softer domestic inflation data earlier in the week, suggesting investors remain comfortable holding cyclical currencies while risk appetite stays firm.
Yet the broader currency response remains remarkably restrained. Dollar has numerous reasons to weaken, including falling oil prices, easing geopolitical tensions, and record equity markets. Nevertheless, it is only modestly lower for the week and shows little sign of accelerating downside momentum. Part of the explanation is that FX traders remain more skeptical than equity investors about the durability of the peace process. Another factor is that recent inflation data and Fed commentary have significantly reduced expectations for policy easing, helping preserve Dollar’s yield advantage.
Elsewhere, Swiss Franc outperforms despite easing geopolitical risks, reflecting expectations that lower oil prices could narrow inflation pressures and limit the need for tighter policy abroad. At the other end of the spectrum, Yen is the weakest performer of the week, though selling pressure remains surprisingly contained as traders remain wary of provoking intervention from Japanese authorities. Loonie is the second worst performer, dragged down by falling oil prices and disappointing Canadian GDP data.
The contrast between asset classes is apparent. Equity markets are pricing a future where diplomacy succeeds, oil prices normalize, and the AI investment boom continues uninterrupted. Currency markets appear far less willing to embrace that best-case scenario. For now, stocks are celebrating peace and technology, while FX traders continue to hedge against the possibility that the story may not unfold quite so smoothly.
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AUD/USD Daily Report
Range trading continues in AUD/USD and intraday bias stays neutral. On the upside, firm break of 0.7183 resistance will suggest that pullback from 0.7277 has completed. Stronger rally should then be seen to retest 0.7277 high. However, decisive break of 0.7076 will indicate that larger scale correction is underway and target 0.6832 support instead.
In the bigger picture, rise from 0.5913 (2024 low) is still in progress. Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will solidify the case that it’s already reversing the down trend from 0.8006 (2021 high). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.
