Forex News

Rabobank’s Senior FX Strategist Jane Foley observes that speculators have been rebuilding long Dollar positions as the US currency acts as the preferred safe haven during the Middle East conflict. She stresses that long USD positioning remains below past peaks and that de‑dollarisation pressures from Russia, China and the EU persist, though near‑term Dollar moves should still hinge on risk appetite and US rate expectations.

USD positioning and structural challenges

"The latest release of CFTC FX positioning data suggest that speculators have continued to rebuild long USD positions."

"For now, we continue to expect the USD to act as a safe haven on bouts of reduced risk appetite with additional support likely being drawn from reduced rate cut hopes."

"CFTC speculators’ positioning data indicate that despite the improvement in the USD’s value in the spot market since late February, current long USD positions are significantly smaller than their peaks in recent years."

"In our view the USD’s safe haven credentials are built around its liquidity and its use as a transactional currency around the world."

"This suggests that for now the USD is likely to remain a safe haven."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Societe Generale economists highlight that Euro area activity data in Q1 have been somewhat disappointing, especially German industry, but they see limited upside risk to their cautious 0.1% qoq German GDP forecast. They also stress resilient Euro area fundamentals, supported by strong private balance sheets, AI and energy investment, German fiscal stimulus and stabilizing housing markets.

German data weak yet manageable

"Once again, this is an oil crisis but not a broad energy one for Europe and the impact on activity should be less than in 2022. This is good news especially as 1Q activity data were a bit on the disappointing side."

"In Germany, industrial production is still falling slightly on a year-over-year basis."

"At the very least, there aren’t upside risks to our cautious real GDP growth forecast for 1Q in Germany (0.1% qoq)."

"As we discussed recently, we don’t see a similar risk of strong indirect and second-round effects on wage growth as the one that caught the ECB off guard in 2021-22, but we still see significant resilience in the euro area economy, fuelled by strong private sector balance sheets, rising needs for AI and energy investment, the German fiscal stimulus and stabilising housing markets."

"A particular concern is that the demographic situation in many countries may sustain labour market tightness which in turn could result in early upward pressures on wages in response to the energy price shock and the German fiscal stimulus."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Deutsche Bank economists note the European Central Bank (ECB) kept rates unchanged in March but now expects two 25 bp hikes in June and September, already fully priced by markets. The deposit rate sits at 2.0%, seen as neutral. Eurozone inflation is projected at 2.8% in 2026, with growth for 2026 cut to 0.5% as energy prices and weak data weigh.

ECB seen hiking twice into 2026 slowdown

"As expected, key interest rates remained unchanged in March."

"Given the energy price shock and materializing economic risks, the ECB is increasingly finding itself in a difficult position, but it is likely to have learned its lessons from the inflation shock of 2022."

"Against this backdrop, we have adjusted our key interest rate forecast and now expect two rate hikes of 25 basis points (bp) each in June and September."

"Currently, around 66 bp are priced in by the end of the year, which corresponds to an implied probability of 64% for a third rate hike."

"In our baseline scenario, we have, among other things, lowered our growth forecast for 2026 from 1.1% to 0.5%. German fiscal policy could have a stabilizing effect on the entire eurozone. We expect an inflation rate of 2.8% for 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

ING economists Peter Virovacz and Frantisek Taborsky say Hungary’s new Tisza-led supermajority reduces short-term policy uncertainty and raises expectations for institutional repair, EU relations and fiscal credibility. They highlight likely delays in EU funds, a near-term deterioration in fiscal metrics, and the potential confidence boost from setting a Euro adoption target as the new government reshapes economic policy.

New mandate, fiscal rebuild, euro option

"From a macro perspective, the key takeaway is the unexpected strength of the mandate for regime change, which reduces short-term policy uncertainty while raising expectations of institutional repair, EU relations and fiscal credibility more quickly than expected."

"While there is widespread expectation that the Magyar government will quickly resolve the EU-fund-related issues, the reality is that it may take longer."

"The Hungarian budget is also facing pressure to be restructured, given that the macro backdrop on which it was based has changed significantly."

"Speaking of fiscal, this year will probably be about dismantling the inherited budgetary and economic policy structure, which could lead to even worse fiscal metrics in the short term."

"Last but not least, the government could set a target date for euro adoption, establishing a path to reach it, which can be shaped later."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

HSBC's report on G8 currencies argues that Middle East geopolitics and Oil remain the dominant drivers for the Dollar and major FX. The bank highlights a recently strengthened USD–Oil correlation driven by supply shock and safe-haven flows. HSBC adds that if this link weakens, pre-conflict FX fundamentals could regain influence over G8 currency performance.

Geopolitics, Oil and shifting USD drivers

"Middle East geopolitics remain the primary driver of FX markets, but the headlines are difficult to interpret as tensions can escalate and ease quickly. We believe market direction may hinge on a few practical indicators, notably the extent ofshipping disruption through the Strait of Hormuz and the resulting path for oilprices. As geopolitical risk rises and falls, oil can move sharply, shifting market sentiment between “risk-off” and “risk-on”."

"Lower oil should support net importers and may improve risk appetite, with "risk-on" currencies likely outperforming "safe-haven" currencies; JPY may lag, though intervention risk rises around USD/JPY 158-162."

"Oil stabilising at this [$100] level may ease temporary pressure on net importers; global recession risk remains limited, but fiscal concerns could increase; FX likely range-bound with a mild USD tilt."

"A prolonged disruption to oil/gas flows via the Strait of Hormuz is likely to weaken market sentiment, lift safe-haven" demand, and hurt net energy importers via terms-of-trade effects."

"Nonetheless, if the positive oil and USD relationship began to show signs of weakening, then it could be an early indication (like ships cross the Strait of Hormuz) of pre-conflict FX behaviours returning. For example, FX fundamentals may regain influence relative to simple energy-price tracking when assessing relative currency preferences."

"Additionally, as the Federal Reserve (Fed) is neither in a rate-hiking cycle nor has turned outright hawkish, there are underlying factors that maycontinue to limit broad-based USD strength."

"Since the conflict intensified, the USD and oil prices have moved more closely together, unlike in prior months. This appears to reflect both an energy supply shockand increased “safe haven” demand for the USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• NZD/USD trades around 0.5830 on Monday, down about 0.16% on the day after opening with a bearish gap.
• The failure of talks between Washington and Tehran and the threat of a blockade of the Strait of Hormuz revive risk aversion.
• The surge in Oil prices fuels inflation fears and reinforces expectations of a restrictive stance from the Fed.

NZD/USD moves lower at the start of the week and trades around 0.5830 on Monday at the time of writing, down 0.15% on the day after the failure of negotiations between the United States (US) and Iran over the weekend.

High-level talks between Washington and Tehran ended without progress despite nearly 21 hours of intense discussions mediated by Pakistan. US Vice President JD Vance said that the United States had put its “best and final offer” on the table, which was rejected by Iran. In this context, US President Donald Trump said that the US Navy could begin blockading the Strait of Hormuz, jeopardizing a fragile two-week ceasefire and reigniting tensions in the Middle East.

This deterioration in the geopolitical environment weighs on global risk appetite and boosts demand for safe-haven assets, supporting the US Dollar (USD) and putting downward pressure on the NZD/USD pair. At the same time, the sharp rise in Oil prices is reviving global inflation concerns, reinforcing expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy stance for longer. Rising US Treasury yields are also helping to support the Greenback.

According to strategists at TD Securities, the outlook for US monetary policy will largely depend on developments surrounding Iran, recent inflation data and incoming activity indicators. The bank expects the Fed to keep rates on hold until September while assessing the impact of higher energy prices and geopolitical risks that could fuel stagflationary pressures.

On the New Zealand side, Reserve Bank of New Zealand (RBNZ) Governor Anna Breman said that the domestic economy could see stronger growth this year if the conflict in the Middle East is resolved quickly. She also noted that previous rate cuts are still providing support to the economy, while emphasizing that the duration of the conflict and the scale of supply disruptions remain highly uncertain.

Meanwhile, the Wall Street Journal reports that several regional countries are working to bring Washington and Tehran back to the negotiating table within the coming days. This prospect of renewed diplomacy is helping to cap the US Dollar’s upside and allows NZD/USD to recover slightly from its intraday lows, although the overall fundamental backdrop remains tilted in favor of bearish traders.

Brown Brothers Harriman’s (BBH) Elias Haddad points to upcoming IMF publications as key for assessing global risks. The World Economic Outlook is expected to show downgraded growth projections, while the Global Financial Stability Report and Fiscal Monitor will focus on sovereign debt sustainability. BBH warns that an energy shock could evolve into a fiscal shock as higher borrowing costs hit stretched public finances.

IMF reports highlight fiscal vulnerabilities

"The IMF releases its closely watched World Economic Outlook on Tuesday."

"IMF chief Kristalina Georgieva flagged last week that global growth will be downgraded, even under the most hopeful scenario of a swift normalization to the energy shock."

"Georgieva also warned that the world has a fiscal space problem reflecting growing public debt and rising interest payments."

"Indeed, we previously highlighted that a key risk facing financial markets is that the energy shock morphs into a fiscal shock as higher borrowing costs collide with already stretched public finances, while sovereign debt is increasingly held by price-sensitive hedged funds."

"The IMF’s updated Global Financial Stability Report (Tuesday) and Fiscal Monitor (Wednesday) should offer a timely assessment around sovereign debt sustainability."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

TD Securities strategists Oscar Munoz and Eli Nir argue that US macro dynamics and Federal Reserve (Fed) policy expectations will be driven by developments in Iran, recent inflation data and incoming activity indicators. They expect the Fed to stay on hold until September 2026, with only gradual easing thereafter, as stagflationary risks from higher Oil prices and geopolitical uncertainty keep policy restrictive.

Fed on hold as stagflation risks build

"We expect the Fed will remain patient amid volatility in developments with Iran."

"We expect the Fed to remain on hold until September as they assess the developments in Iran and its impact on the economy."

"By then, inflation progress will have likely resumed, allowing for the Fed to continue its gradual move towards neutral."

"The onus will be on the data to force the Fed's hand."

"We look for 50bps total of easing this year in September and December with an additional 25bps cut in March 2027, ending with a Fed funds rate at 3.00%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)