US Dollar Weakens Amid Oil Price Decline on Hopes of a Swift Resolution to the Iran Conflict

Currency Market Update: January 2020

Key Takeaways

• The dollar's safe-haven appeal has waned on speculation that the conflict in the Middle East may be limited, leading to a decline in oil prices and a boost in risk assets.
• The greenback has retreated from day-earlier highs, trading at 157.73 yen and $1.1632 per euro in early Asia trade.

Market Impact

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• Brent crude futures have decreased to $92.46 a barrel in Asia morning trade, down from highs near $120 on Monday.
• The risk-sensitive Australian dollar has steadied at around $0.7068, having traded near 70 cents since the conflict broke out.
• Sterling has recovered from a Monday dip, holding at $1.3412, while the New Zealand dollar has steadied at $0.5932.

Economic Analysis

• The dollar has been a traders' shelter-of-choice due to concerns over the impact of the conflict on global growth, with investors worried that oil price shocks could curtail business and consumption.
• A Deutsche Bank analysis suggests that larger market moves out of risky assets may require oil prices to remain at higher levels, a policy pivot from central banks, and tangible signs of a broader economic slowdown.
• Strategist Henry Allen notes that while the market is closer to meeting these thresholds than a week ago, it is not yet there, explaining why equities have not seen bear-market declines.

Market Outlook

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• The market is in a wait-and-watch stance, with traders cautious about the potential for further volatility.
• The National Australia Bank's Rodrigo Catril notes that the market is simply taking a breather, but warns that the end of the conflict may not be as simple as declared.