According to OCBC strategists Sim Moh Siong and Christopher Wong, the US Dollar (USD) has experienced broad-based strengthening, driven by higher oil prices, hawkish rhetoric from the Federal Reserve (Fed), and softer risk sentiment in the markets [1]. The strategists highlight that rising Middle East tensions and firmer oil prices have contributed to improved terms-of-trade dynamics for the USD, while expectations for higher US interest rates have further supported the currency's appreciation against almost all G10 currencies [1].
Looking forward, OCBC expects the USD to appreciate by approximately 2% to 3% by the end of 2026, particularly against lower-yielding currencies such as the Euro (EUR) and Swiss Franc (CHF) [1]. The strategists note that a more significant rally, exceeding 5%, is considered a tail risk and would likely require oil prices to rise above USD 100 per barrel [1].
The report emphasizes that the greenback's current strength is underpinned by a combination of higher energy prices, rising US rate expectations, and a cautious market sentiment, which collectively favor the USD over its G10 peers [1]. However, the potential for a larger rally is contingent on further escalation in oil prices, especially if they surpass the USD 100/bbl threshold [1].
CONCLUSION
OCBC strategists see the US Dollar maintaining its strength due to higher oil prices and hawkish Fed expectations, with a projected appreciation of 2%–3% by end-2026. A more substantial rally is possible if oil prices exceed USD 100/bbl, but this is viewed as a tail risk. The market takeaway is a cautiously positive outlook for the USD, especially against lower-yielding currencies.