Conflict trades have reversed following the announcement of a ceasefire between US and Iran, with the USD selling off amidst a decline in oil prices below $100 and easing US yields. To be sure, the truce is fragile, with Iran complaining that ceasefire terms have been violated given ongoing Israeli attacks in Lebanon, while shipping in the Strait of Hormuz has also not been given an all-clear as Iran seeks strategic deterrence and funds for reparations through transit levies, payable by cryptos. Still, hopes of a sustained diplomatic engagement should weigh on the USD, with US Vice-President Vance set to meet Iran President Pezeshkian for the first high-level direct talks in Islamabad this weekend.
In Asia, currencies that have seen the worst selloffs due to high oil import dependence have also rebounded the most. KRW is the best performer, having rallied almost 2% following the ceasefire, with USD/KRW slipping below 1490. THB is the second-best performer, rallying around 1.5%. Still, both currencies remain the worst performing Asian currencies since the outbreak of the US-Iran conflict.
RMB, which is the most insulated from the conflict, has also appreciated amid USD weakness. USD/CNH has now eased towards 6.83, reaching its lowest since March 2023. Surprisingly, the White House affirmed that the US has been talking with China as part of negotiations over a ceasefire, perhaps to use its influence over Iran to ensure diplomatic success. Trump is now looking forward to visiting China in just a few weeks, and the RMB is likely to be kept strong ahead of his visit.
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