UBS adds Norwegian krone to top FX picks as oil rally seen capped
UBS expects currency markets to remain sensitive to developments in the Middle East, but believes global oil market adjustments should prevent a sustained surge in crude prices, reducing the need for additional interest rate hikes by major central banks and supporting ris…
Intelligence analysis by Llama
UBS expects currency markets to remain sensitive to developments in the Middle East, but believes global oil market adjustments should prevent a sustained surge in crude prices, reducing the need for additional interest rate hikes by major central banks and supporting risk assets. The bank said swings in oil prices linked to the Iran conflict have been the main driver of inflation exp…
Imagine you're a currency trader. You're watching the oil prices go up and down because of the conflict in the Middle East. UBS thinks that the oil prices will go up and down, but not too high, so the big banks don't need to raise interest rates. This is good news for people who like riskier investments, like the Norwegian krone.
Analysis
A $60B Vote of Confidence
UBS expects currency markets to remain sensitive to developments in the Middle East, but believes global oil market adjustments should prevent a sustained surge in crude prices, reducing the need for additional interest rate hikes by major central banks and supporting risk assets. The bank said swings in oil prices linked to the Iran conflict have been the main driver of inflation expectations and currency moves.
Why Cursor?
While renewed tensions have lifted crude prices, UBS expects the conflict to alternate between periods of escalation and de-escalation, with Brent crude unlikely to remain above $100 a barrel in the near term. That backdrop should allow most G10 central banks to keep policy unchanged rather than resume tightening.
The Road Ahead
Against that backdrop, UBS continues to favor selective exposure to higher-yielding and pro-growth currencies. The bank rates the Swedish krona, New Zealand dollar, Australian dollar, British pound, Chinese yuan and, newly, the Norwegian krone as attractive, citing resilient economic fundamentals and supportive carry opportunities.
Key points
- UBS expects currency markets to remain sensitive to developments in the Middle East.
- The bank believes global oil market adjustments should prevent a sustained surge in crude prices.
- UBS continues to favor selective exposure to higher-yielding and pro-growth currencies.
- The bank rates the Swedish krona, New Zealand dollar, Australian dollar, British pound, Chinese yuan and, newly, the Norwegian krone as attractive.
- UBS expects the conflict to alternate between periods of escalation and de-escalation.
If the conflict in the Middle East continues to alternate between periods of escalation and de-escalation, UBS expects the oil prices to remain stable, allowing most G10 central banks to keep policy unchanged. This could lead to a sustained rally in risk assets, including higher-yielding currencies.
A renewed escalation of the conflict in the Middle East could disrupt energy supplies, strengthen the US dollar, trigger broader risk-off sentiment, and weigh on higher-yielding currencies.