Oil

We had lowered our Brent oil price forecast previously following OPEC’s surprise move in early March to proceed with planned production hikes. However, driven by fears of supply disruptions from new sanctions and so-called “secondary tariffs”, Brent oil rallied to the mid-US$70s/barrel in late March. Nevertheless, oil prices have since reversed lower on OPEC+’s unexpected decision to accelerate its supply hikes. OPEC+ announced that it would increase production by 411,000 bpd in May, tripling the amount the producer group had previously planned to add. This comes as a surprise, as we thought OPEC+ would have preferred to act more cautiously with its supply hikes given downside risks to global growth from trade uncertainty. Concerns over weaker oil demand as US tariffs increases the risks of global recession, have also weighed on oil prices.

We are reducing our 12-month Brent forecast to US$67/barrel from US$70/barrel as tariff escalation and somewhat higher OPEC+ supply are likely to weigh on oil prices in the months ahead. Oil demand is set to weaken under our new base case of two quarters of stagflation as tough negotiations are likely over the next few months to roll back US reciprocal tariffs while a 10% US baseline tariffs remain. If the new US tariffs remain throughout 2025 and foreign countries retaliate, then the global economy could fall into recession. With US shale as the largest contributor to non-OPEC supply growth, rising break evens have made the sector more sensitive to lower prices.

Precious metals

We raise our 12-month gold price forecast to US$3,900/ounce from US$3,400/ounce. Stagflation risk fuelled by trade uncertainty and concerns over an erosion of the US Dollar’s (USD’s) global financing and reserve role in a Trump 2.0 world remain potent tailwinds for gold.

Since mid-2024, gold exchange traded fund (ETF) outflows have reversed, marking a shift in trend from recent years. Despite gold ETF inflows gaining momentum, total holdings globally remain well below the record highs reached five years ago, suggesting there is ample room for this trend to extend. Investors could continue to buy gold as a portfolio hedge against stagflation risk as uncertainty related to tariff policies are likely to remain elevated.

Emerging Market central banks, which are underweight gold compared to their Developed Market counterparts, are likely to remain strong buyers of gold. Diversification away from USD reserve holdings, while still moderate, could pick up on concerns over an erosion of the USD’s global financing and reserve role in a Trump 2.0 world. The underpinnings of the USD’s global role could potentially weaken as Trump’s policies prompts the world to increasingly question whether the US is a reliable partner.

Currency

The US Dollar (USD) index (DXY) extended its decline in March as the unwinding of US exceptionalism trades accelerated. Markets are increasingly focused on how Trump’s tariffs are hurting US economy. US data has also been weaker than expected. Ultimately for currency markets, relative growth matters. If growth in the US slumps because of its own doing (i.e. protectionist measures) while growth for the rest of the world holds up (on a relative basis), then the USD may end up weaker over time. From a currency point of view, markets appear to shift from trading tariff fears to trading US recession concerns, and to some extent even trading the de-dollarisation narrative. To put things in perspective, US protectionist measures, fading US exceptionalism and ballooning US debt are some catalysts that may call into question the USD’s status as a reserve currency. More broadly, we continue to expect a divergent USD play, with USD weaker against major currencies, including the Euro (EUR), Swiss Franc (CHF) and Japanese Yen (JPY) while USD may still maintain a firmer tone versus Asia ex-Japan currencies, taking into consideration the potential implication of Trump tariffs on global growth, global trade and sentiments. That said, the currency bias may change depending on how trade negotiations and the de-dollarisation theme pans out.

The EUR continued to trade higher to levels not seen in more than six months. We are constructive (versus neutral previously) on the EUR’s outlook, due to recent developments: (i) German/European spending plans helping to boost growth; (ii) signs of a Ukraine peace deal that can lead to supply chain normalisation, lower energy costs, reduce existing burden on corporates and households, improve sentiments and the growth outlook; (iii) prospects of the ECB rate cut cycle nearing its end while there is room for the Fed to cut further; (iv) encouraging signs that China’s economic growth is showing tentative signs of stabilisation; (v) EU leaders making efforts to identify concessions they are willing to make to secure a partial removal of US tariffs; (vi) portfolio flows and reserve diversification which may favour alternative reserve currencies such as EUR. That said, we still flag the risk that other tariffs on alcohol (200% tariff), lumber, semiconductors and pharmaceuticals may still be forthcoming in the coming weeks. Tariff imposition may still weigh on the EUR.

We still look for the USD-JPY cross to trend lower. Prospects of wage growth, broadening services inflation and upbeat economic activities continue to support BOJ policy normalisation. Fed-BOJ policy divergence should continue to underpin the broader direction of travel for USDJPY to the downside.

Despite Singapore Dollar (SGD) gains, we continue to flag risks that Singapore may be affected by sectoral-specific tariffs (i.e. pharmaceutical and semiconductor) which could take place at some point this year. Our USDSGD forecast is skewed to the upside for most parts of 2025, taking into consideration the potential implication of Trump’s tariffs on global trade/growth and sentiments as well as potential MAS policy easing. That said, the prospects of a firmer recovery in the EUR and Renminbi (RMB), as well as the risk of a sharper sell-off in the USD, may turn out to be surprise factors helping to support the SGD.