OCBC’s Sim Moh Siong said the risk-on reaction to the US–Iran memorandum of understanding on 14 June, with signing targeted for 19 June, led to only a modest easing in US yields and the broad US Dollar. The bank attributed the currency’s resilience to caution over hawkish Federal Reserve outcomes ahead of this week’s FOMC meeting, constrained positioning into the event, and continued AI-driven investment that is supporting labour demand and underpinning a relatively firm US growth outlook versus peers. OCBC remains neutral on the Dollar and prefers FX cross trades rather than outright USD shorts.
Oil-market conditions were also framed as a brake on further USD downside. Brent has fallen to around USD83 per barrel, near many year-end forecasts, and OCBC expects it to drift towards USD80 by year-end, while stating risks are skewed higher. Even if a reopening of the Strait of Hormuz occurs, the report said normalisation would likely be gradual, as mine clearance, insurance reinstatement, the restart of shut-in production and precautionary stockpiling could all slow any further decline in oil prices; it also cited a rebound in EM oil importer currencies such as IDR, INR and PHP.
Limited Downside Risks and Options Strategies for the US Dollar
We see limited downside for the US dollar in the coming weeks, so shorting it outright seems risky. Markets are clearly cautious ahead of the Federal Reserve’s policy decision next week. This makes going long on volatility or taking a strong directional bet against the dollar unattractive.
The American economy’s resilience, largely fueled by AI-driven investment, continues to support a strong labor market. For instance, the latest jobs report from early June showed a robust addition of 272,000 jobs, keeping wage pressures firm. This underlying strength reinforces our view that the Fed will not be rushed into cutting interest rates.
For those trading options, this suggests that selling out-of-the-money puts on the dollar could be a viable strategy to collect premium. With market volatility, as measured by the VIX index, hovering near a relatively low 13, it is a way to capitalize on the view that a sharp decline is unlikely. This approach benefits from both time decay and the dollar’s expected stability.
Oil prices also provide a floor for the dollar, limiting its potential fall. Even with the recent US-Iran understanding, Brent crude remains firm around $85 a barrel, and we don’t expect a significant drop below $80. Any normalization in global supply will be slow, which should keep energy prices, and thus the dollar, supported.
FX Cross Trades Amid Fed Uncertainty
Given the uncertainty around Fed policy, we prefer to look at FX cross trades that don’t involve the US dollar. This allows us to take positions on the relative strength of other economies, such as the Euro versus the Japanese Yen, without being exposed to a sudden move from the Fed. Trading futures or options on pairs like EUR/JPY or AUD/NZD can sidestep the primary event risk.
