OCBC strategists Sim Moh Siong and Christopher Wong have revised their FX outlook, now favoring a stronger US Dollar (USD) in the near term due to a sharp rally in oil prices and increased safe-haven flows. This shift reverses their earlier expectation of a gradual USD decline, which was based on US policy uncertainty, improving global growth, and stretched valuations. The strategists note that the March US employment report surprised to the upside, indicating a stabilizing labor market. This development reduces the likelihood of further Federal Reserve easing and supports an extended policy hold, aligning with the hawkish repricing of rate expectations since the onset of the US–Iran conflict [1].
Over the past week, sentiment improved on hopes of de-escalation, with Brent crude retreating from early-week highs near USD119 per barrel. As a result, hawkish central bank rate expectations were pared back, and the USD traded mixed against G10 peers [1]. OCBC suggests that if credible de-escalation emerges, the USD could resume a shallow depreciation trend, as easing energy risks would benefit non-US economies and global risk assets [1].
Looking further ahead, OCBC maintains that a softer USD remains possible later in the year if oil prices fall meaningfully in the second half of 2026. However, they believe any downside should be contained, given resilient US growth and the USD's reaffirmed safe-haven role, which offsets rather than amplifies equity drawdowns [1].
CONCLUSION
The surge in oil prices has re-anchored the USD, prompting OCBC strategists to revise their outlook toward a stronger Dollar in the near term. While a softer USD is possible later in the year if oil prices decline, resilient US growth and the currency's safe-haven status are expected to limit downside risks. Market sentiment remains mixed, with future USD direction dependent on energy market developments and geopolitical de-escalation.