The stalemate between Tehran and Washington remains the primary source of friction in global currency markets. Despite diplomatic efforts, the deadlock over the Strait of Hormuz authority and the terms of a new nuclear framework has prevented a clear "risk-on" break. This uncertainty is keeping a floor under Brent crude prices, hovering near USD 100 per barrel, and preventing a broader sell-off in haven assets. including the USD. Until a tangible diplomatic breakthrough or a de-escalation roadmap is announced, expect defensive positioning to limit the upside for G10 currencies. Within Asia, the focus remains on the high sensitivity of oil-importing economies to energy costs. Defensive currencies, specifically the INR, IDR, and PHP, are currently trading with a heavy bias. These regional pairs will be looking for relief in the form of oil prices declining sustainably below USDS 100 to ease imported inflationary pressures and improve current account outlooks.
USD/CNY broke below the psychologically important 6.80 level, driven by high expectations for the Trump-Xi summit on May 13-15. Following the US Court of International Trade's ruling against Trump’s new global tariffs, the focus has shifted to the creation of a Board of Trade and a Board of Investment with China, suggesting a move toward structural cooperation rather than a trade war. AUD/USD is maintaining its resilience, holding firm above 0.72, benefiting from its proxy role for China risk. While other central banks are pivoting towards addressing short-term inflation risks too, the market continues to price in at least one more Reserve Bank of Australia hike later this year, driven by persistent inflation, not only war-related energy prices but also domestic demand pressures.
US Treasury Secretary Scott Bessent’s meetings with Japan’s Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda are the most critical JPY catalysts this week. USD/JPY bears are looking to see whether Bessent implicitly endorses Japan’s recent JPY interventions or demand higher Japanese interest rates to narrow the spread with the US. By supporting a stronger JPY, Bessent could frame a narrative that discourages China from pushing a competitive CNY. Bessent will likely reassure Tokyo that Washington is not focusing exclusively on Beijing and that a stable Japan provides an anchor in Asia as well.
Quote of the Day
“Real leaders must be ready to sacrifice all for the freedom of their people.”
Nelson Mandela
May 12 in history
In 1984, South African prisoner Nelson Mandela saw his wife Winnie Mandela for the first time in 22 years.
Topic
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