Forex News

HSBC strategists describe Malaysia as relatively resilient to elevated Oil prices thanks to its status as a net energy exporter and beneficiary of the AI (Artificial intelligence) hardware cycle. Strong Gross Domestic Product (GDP) and export performance contrast with rising fiscal costs from petrol subsidies. They keep growth forecasts intact, lift inflation projections, and expect Bank Negara Malaysia (BNM) to keep rates unchanged through 2027.

Resilient growth but fiscal strains build

"Until the Middle East conflict, the Malaysian economy was in a “Goldilocks” stage, with strong growth and stable inflation. But the conflict increases the possibility of downside risks to growth and upside risks to inflation, even if Malaysia has demonstrated more resilience than regional peers, as it is not only a net energy exporter, but also a key beneficiary of the sustained AI cycle."

"Malaysia has made a strong start to the year, with GDP up 5.4% y-o-y in 1Q26. While construction cooled from double-digit to single-digit growth, the sustained strength in manufacturing and services has more than offset the moderation."

"Exports remain strong, thanks to the ongoing AI-driven tech cycle. On a 3-month moving average basis, Malaysia’s electronics exports surged to 30% y-o-y."

"This comes with significant fiscal costs. The monthly subsidy bill for energy has risen tenfold from MYR700m to MYR7bn due to the conflict. The hefty subsidies raise questions on what comes next for the RON95 policy, as it imposes huge pressures on Malaysia’s fiscal coffers."

"Overall, we maintain our GDP growth forecasts at 4.5% for 2026 and 4.7% for 2027. Bank Negara Malaysia (BNM) is one of the few Asian central banks to raise its 2026 growth forecast range, increasing it from 4-4.5% to 4-5%."

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

Geoff Yu at BNY identifies Indonesia as one of the clearest cross-asset signals in Emerging Markets (EM) APAC (Asia-Pacific). Fiscal concerns drove heavy outflows from sovereign bonds and Indonesian Rupiah (IDR) in March, but FX flows have since stabilized while bond flows remain weak. iFlow’s carry index suggests liquidation is slowing, leaving a better tactical opportunity in IDR FX than in Indonesian sovereign credit.

FX carry stabilizes as bond stress lingers

"Indonesia, one of the few clear cross-asset signals."

"Indonesia is one of the cleanest signals in the region. FX and fixed income lined up. Fiscal concerns worsened balance-of-payments stress in March, making that the biggest outflow period for both sovereign bonds and IDR."

"Our data tracked more than $200mn of outflows in March alone, close to 50% of total Indonesia outflows year to date. Hedge ratios on these carry-driven trades are limited because they are expensive, so FX flows were smaller in size."

"Since late May, some divergence has emerged. FX flows have stabilized even as IDR bond flows continue to worsen. Our iFlow Carry index suggests FX carry liquidation is running out of steam, helping IDR recover."

"That leaves a better tactical opportunity in FX than in sovereign credit or duration."

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

• Gold steadies above $4,000 amid softer US Dollar, easing Treasury yields after US PCE inflation data.
• Softer-than-expected monthly inflation data cools near-term Fed rate-hike expectations.
• Technically, XAU/USD maintains a bearish bias as prices remain below the middle Bollinger Band.

Gold (XAU/USD) holds above the $4,000 mark on Friday as the US Dollar (USD) softens following the latest US Personal Consumption Expenditures (PCE) inflation report, which broadly met forecasts and reduced expectations of a near-term Federal Reserve (Fed) interest rate hike.

At the time of writing, XAU/USD trades around $4,065 after hitting a seven-month low of $3,959 earlier this week.

Data released on Thursday showed the headline PCE rose 0.4% MoM in May, unchanged from April but below the 0.5% forecast. Core PCE held steady at 0.3%, matching expectations.

Following the data, traders trimmed bets on a September rate hike, with the probability falling to 61% from 70% a week ago, according to the CME FedWatch Tool.

While the softer monthly readings helped ease immediate rate-hike concerns, the annual inflation figures remained well above the Fed's 2% target, suggesting policymakers are likely to keep borrowing costs elevated for longer, even as lower Oil prices are expected to help cool inflationary pressure in the coming months.

Against this backdrop, Gold may struggle to stage a meaningful recovery and remains on track for a fourth consecutive monthly decline, pressured by a broadly stronger US Dollar, Fed rate-hike bets and liquidity-driven selling during the US-Iran war.

"Gold is showing tentative signs of stabilisation after the sharp decline, but a durable rebound still requires a friendlier rates backdrop. As long as markets continue to price a meaningful risk of Fed tightening, rallies may remain prone to fading. For Gold to regain more durable upside traction, real yields need to ease more clearly, Fed hike expectations need to unwind, and ETF/investor liquidation needs to stabilise," OCBC's FX strategists said.

Meanwhile, the US Dollar is set to post a second consecutive monthly gain, making Gold more expensive for overseas buyers. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.12 after hitting a more than one-year high near 101.80 earlier this week.

On the geopolitical front, uncertainty over a final US-Iran agreement keeps traders cautious. Iran said on Friday that the US military presence in the Gulf is fueling insecurity and division in the region. Tehran also reiterated that safe passage through the Strait of Hormuz must be coordinated with Iranian authorities.

Technical Analysis: ADX signals a strong downtrend as XAU/USD clings to $4,000

In the daily chart, XAU/USD maintains a bearish near-term bias as price holds below the 20-period Bollinger Simple Moving Average (SMA) at $4,248.

The Relative Strength Index (RSI) at 35 hovers just above oversold territory, while the Average Directional Index (ADX) at 41 signals a strong, persistent downtrend, suggesting that any bounces are likely to be capped by nearby overhead levels.

On the topside, initial resistance is located at the Bollinger middle band near $4,248, with a stronger barrier at the upper band around $4,543.

On the downside, immediate support is seen around the horizontal level at $4,000, ahead of the Bollinger lower band at $3,953, where sellers could pause before attempting another leg lower.

(The technical analysis of this story was written with the help of an AI tool.)

Commerzbank’s Bernd Weidensteiner argues that despite market expectations for further Fed tightening, falling Oil and gasoline prices should lower U.S. inflation and ease pressure for hikes. The bank forecasts no rate increases, with cuts possible from summer 2027, and expects the Dollar to come under renewed pressure once the Iran conflict ends and pronounced easing begins.

No hikes, cuts penciled in for 2027

"Consumer prices are therefore likely to be even lower in June than in May. Significantly declining inflation rates in the coming months would reduce the pressure to deliver rate hikes."

"We continue to expect that the Fed will not raise interest rates. In the summer of 2027, with inflation then significantly lower, interest rate cuts may even be possible again, even though this is no longer being discussed at all in the markets."

"The dollar is likely to be under pressure again after the end of the war with Iran because the Fed is unlikely to raise rates as markets have priced in."

"Rather, the Fed is likely to embark on pronounced and ultimately excessive interest rate cuts again in 2027, also because of the political pressure."

"Furthermore, the dollar is vulnerable because it is significantly overvalued based on purchasing power parity."

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

OCBC’s FX strategists Sim Moh Siong and Christopher Wong highlight that Brent Oil has dropped sharply on optimism over the reopening of the Strait of Hormuz after a US–Iran deal, but warn markets may be underpricing security risks. They keep their end-2026 Brent forecast at USD80/bbl and expects a gradual drift toward a low USD60 range in 2027–28, with near-term supply disruption risks slowing further declines.

Oil pressured but risk premium lingers

"The reopening of the Strait of Hormuz following the US-Iran deal triggered a sharp drop in oil prices. Brent has fallen more than USD30/bbl since early May and now trades below USD80/bbl."

"Markets appear to be pricing a smooth reopening. Any delay or partial implementation could quickly bring back the security risk premium. "

"We keep our end-2026 Brent forecast at USD80/bbl. Beyond that, we still expect a gradual move toward a low USD60 range in 2027–28."

"Near term, the risk of supply disruption should slow further decline in oil prices from here. Overnight, crude prices edged higher as doubts emerged over the durability of the US-Iran deal. "

"This followed a strike on a cargo ship in the Strait of Hormuz that caused significant damage to its bridge. The Wall Street Journal reported Iran may be responsible, though this remains unconfirmed. The incident underscores lingering fragility and raises fresh questions on how quickly oil flows can normalise."

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

• NZD/USD stabilizes around 0.5650 after seven consecutive losing days.
• Latest US inflation data weigh on the US Dollar and reduce expectations of a Fed rate hike in July.
• Expectations that the RBNZ will keep rates unchanged in July continue to pressure the NZD.

NZD/USD trades around 0.5650 on Friday, up 0.05% at the time of writing, as the New Zealand Dollar (NZD) remains under pressure despite a weaker US Dollar (USD) following the latest US inflation data.

The US Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred inflation gauge, rose 4.1% YoY in May, matching market expectations. On a monthly basis, the PCE Price Index increased by 0.4%, below the 0.5% consensus forecast, reinforcing expectations that inflationary pressures may have peaked or are close to doing so.

Following the release, investors scaled back expectations for a 25-basis-point Fed rate hike at the July meeting. According to the CME FedWatch tool, the chance of a July hike fell to around 29.9%, down from 38.5% a week ago, putting pressure on the US Dollar.

However, the New Zealand Dollar has struggled to capitalize on the Greenback's weakness. Expectations that the Reserve Bank of New Zealand (RBNZ) will keep its Official Cash Rate unchanged at its July meeting continue to limit the Kiwi's upside potential. ASB Bank has dropped its forecast for a July rate hike and now expects the RBNZ to remain on hold before resuming gradual tightening from September, with the Official Cash Rate projected to peak at 3.25% in early 2027.

Markets also continue to view a September Fed rate hike as a realistic possibility, even though near-term expectations have eased following the PCE release. This divergence in monetary policy expectations between the two central banks could continue to shape NZD/USD price action in the coming days.