Equity and bond markets both advanced during Monday's Asian trading session, while the US dollar declined, following the announcement of a US-Iran peace agreement to reopen the Strait of Hormuz and lift US sanctions against Iran. US crude oil futures fell by more than 4%, S&P 500 index futures gained approximately 0.8%, and the US dollar weakened broadly.
Nick Twidale, Chief Market Strategist at ATFX Global in Sydney, stated that the market will adopt a wait-and-see approach, focusing on how quickly the Strait can be reopened and when oil supplies can truly return to normal. This will certainly take months, not weeks. I don't expect oil prices to return to $70 per barrel quickly in the short term.
Mahjabeen Zaman, Head of FX Research at ANZ in Sydney, noted that this positive news was largely anticipated, with markets having already been in a slow uptrend and a holding pattern, meaning some of the positive sentiment has already been priced in. From a cyclical FX perspective, I believe there is still room for upside from current levels. We might see a drop below $80 today due to exuberant market sentiment... but then the market may realize: wait, the terms of this deal might not be that favorable. We also believe that, based on infrastructure damage alone, oil prices will remain at relatively elevated levels.
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