EUR/USD drew dip-buying in Asia on Thursday, after pulling back late on Wednesday from near 1.1800, a level last seen more than two weeks ago. It traded just above the mid-1.1700s, up nearly 0.10% on the day, with moves led by the US Dollar.

The US Dollar stayed weak for a second day, despite a bounce after US jobs data. ADP reported private-sector employment rose by 109K in April, following a downwardly revised 61K in the prior month.

Us Iran Deal Headlines

Price action was also linked to talk of progress towards a US-Iran deal. Donald Trump said talks advanced over the past 24 hours and that Iran wants a deal, while Axios cited two US officials saying the White House was nearing a one-page memorandum of understanding.

Expectations for a more hawkish Federal Reserve have eased, although the CME Group’s CME FedWatch Tool still shows markets pricing a possible Fed rate hike by year-end. Doubts also remain due to disagreements over Iran’s nuclear programme, which can support the dollar.

Traders are watching German Factory Orders, the French Trade Balance, US Challenger Job Cuts, and US Weekly Initial Jobless Claims. Attention then turns to Friday’s US Nonfarm Payrolls, alongside further Middle East updates.

Looking back at the market sentiment in early May 2025, we saw the EUR/USD pair pushing towards 1.1800 based on hopes for a US-Iran peace deal, which was weakening the dollar. This optimism was clashing with underlying US economic data and the chance of a Federal Reserve rate hike later that year. The key was to treat this as a news-driven event with high uncertainty, making options a smarter play than trading the spot currency.

Volatility And Positioning

The implied volatility in EUR/USD options at that time reflected this tension, with one-month volatility ticking up from around 6% to over 8% in just a few days. Historically, such spikes precede significant price moves, as the market braces for a binary outcome. The CME FedWatch tool then showed rate hike odds for late 2025 dropping below 50%, highlighting how geopolitical news was temporarily overshadowing economic fundamentals.

Given the upcoming US Nonfarm Payrolls (NFP) report, the ideal strategy was to position for a large move in either direction. Buying a straddle, which is a call and a put option with the same strike price and expiry, would have been the correct response. This trade was designed to profit whether the Iran deal materialized and sent the dollar tumbling, or if a strong jobs report caused a sharp dollar rebound.

As we now know, the NFP figure released in May 2025 came in stronger than anticipated at over 210,000, while the Iran negotiations stalled over the following weeks. This combination caused the US dollar to reverse course and strengthen, sending the EUR/USD pair back towards the 1.1600 level. Traders who had positioned for volatility using a straddle would have profited from this sharp reversal as the market’s focus snapped back to Fed policy.

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Australia’s trade balance moved to a deficit of $1,841M month-on-month in March, from 5,026M previously (revised from 5,686M). Markets had expected a surplus of 4,250M.

Exports fell 2.7% month-on-month in March, after a 4.2% rise in February (revised from 4.9%). Imports rose 14.1% month-on-month, after a 2.7% fall in February (revised from -3.2%).

Market Reaction And Key Levels

At the time reported, AUD/USD was up 0.12% to 0.7245. A preview published on May 6 at 23.30 GMT noted the data release was due at 00.30 GMT.

The preview set out potential AUD/USD levels: 0.7277, 0.7300 and 0.7380 on the upside, and 0.7153, 0.7110 and 0.7000 on the downside. It described trade balance as a measure of net export performance.

Background notes said AUD drivers include RBA policy and an inflation target of 2–3%, as well as China’s demand and market risk appetite. Iron ore was described as Australia’s largest export at $118 billion a year, based on 2021 data.

Implications For Rba And Aud Outlook

We are seeing an echo of past volatility in Australia’s latest trade figures. The March 2026 trade balance just posted a surprisingly narrow surplus of $5.02 billion, a sharp drop from the previous month and well below market expectations, driven by a slump in exports. This situation reminds us of similar unexpected data shocks we saw years ago, highlighting how quickly the trade outlook can shift.

This recent data has put immediate pressure on the AUD/USD, which is now struggling to hold above the 0.6600 level. This is a stark contrast to the stronger surpluses we were accustomed to seeing back in early 2025, which supported the currency at higher levels. For traders, this signals that the path of least resistance for the Aussie dollar may be downwards in the short term.

The key driver for the Australian dollar remains the Reserve Bank of Australia’s interest rate policy, which currently holds the cash rate at 4.35%. This weak trade data complicates the RBA’s fight against inflation, potentially reducing the chance of further rate hikes that many had priced in. We believe this introduces significant uncertainty, as the market now has to balance weak growth signals with persistent inflation.

Adding to this pressure, we see that key commodity prices, particularly for iron ore, have softened, trading recently around $105 per tonne. This is largely due to ongoing concerns about the strength of China’s economic recovery, especially in its property sector. Since China is our largest trading partner, any weakness there directly translates into lower export receipts and a weaker Australian dollar.

Given this backdrop of uncertainty, derivative traders should consider strategies that benefit from increased volatility. Buying put options on the AUD/USD can provide a good hedge against a potential drop towards the 0.6500 support level in the coming weeks. Alternatively, volatility strategies like straddles could be effective around the release of the next quarterly CPI data.

Looking ahead, the most critical data points will be the next monthly employment figures and any fresh economic stimulus announcements from China. A strong jobs report could force the RBA’s hand back towards a hawkish stance, creating a sharp upward move in the Aussie. Therefore, positions should be managed carefully around these key event risks.

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Australia’s month-on-month trade balance for March was -1841M. This was below the forecast of 4250M.

The result indicates a trade deficit for the month. The forecast had pointed to a trade surplus.

Trade Balance Shock And Fx Implications

The March trade balance figures are a major negative surprise for us. We’ve shifted from expecting a A$4.25 billion surplus to seeing an actual deficit of A$1.84 billion. This kind of miss points to a rapid weakening in our export strength and puts immediate downward pressure on the Australian dollar.

This weakness is likely tied to lower commodity prices, especially for our key exports. Iron ore prices, for instance, have struggled to stay above US$110 per tonne in recent weeks due to ongoing concerns about China’s property sector and steel demand. We saw similar commodity price volatility impact trade figures back in 2025, but this deficit is a more significant signal of slowing global demand.

Given this, we should consider buying AUD/USD put options to position for a potential slide towards the 0.6400 level in the coming weeks. The unexpected data will increase implied volatility, making options a good way to define our risk on a bearish bet. Selling out-of-the-money call options is also a viable strategy to finance the purchase of puts.

Rba Repricing And Equity Positioning

This report will also change how we view the Reserve Bank of Australia, which just held the cash rate steady at 4.35% earlier this week. The market will now almost certainly price out any possibility of a rate hike this year and could begin pricing in rate cuts sooner than anticipated. We can use interest rate futures to position for this more dovish outlook from the central bank.

On the equity side, this is a clear negative for the ASX 200, which is heavily weighted towards the materials sector. We should look at shorting index futures or buying puts on mining-focused ETFs. A sustained trade deficit hurts national income and will likely weigh on broader market sentiment beyond just the big miners.

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Australia’s month-on-month exports fell to -2.7% in March. The previous reading was 4.9%.

The March result shows a reversal from the prior month’s growth. The data indicates exports declined compared with February.

Exports Driven Pressure On The Australian Dollar

The sharp reversal in Australia’s month-over-month exports, from a strong 4.9% gain to a -2.7% contraction in March, signals a significant slowdown. This points to cooling demand from our key trading partners and places immediate downward pressure on the Australian dollar. We should therefore anticipate a bearish trend for the AUD in the coming weeks.

Given this outlook, we are considering strategies that profit from a falling AUD/USD exchange rate. Buying put options with strike prices below the current 0.65 level offers a defined-risk way to capitalize on this expected weakness. This view is supported by the Reserve Bank of Australia’s decision to hold rates steady at its meeting this week, citing concerns over the global economic outlook.

This export data is largely a reflection of the commodity markets, especially with iron ore prices failing to hold above $110 per tonne. We saw a similar pattern in late 2025 when weakening manufacturing data out of China led to a rapid sell-off in industrial commodities. The latest Caixin Manufacturing PMI from China, which came in just above the 50-point mark, shows that its economic momentum is fragile at best.

Consequently, we should also anticipate weakness in the Australian equity market, as the ASX 200 is heavily weighted towards major resource companies. Shorting ASX 200 index futures or buying protective puts on the index can hedge against a downturn driven by the mining sector. The performance of giants like BHP and Rio Tinto will be a key indicator to watch.

Positioning For Higher Volatility

This data suggests an increase in currency volatility is likely over the next trading period. For those anticipating larger price swings, option strategies like straddles on the AUD could be effective. We must now watch the upcoming domestic inflation figures closely, as they will determine the RBA’s flexibility in responding to this external pressure.

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Australia’s imports rose by 14.1% month-on-month in March. In the previous month, imports fell by 3.2%.

The latest reading shows a sharp monthly increase compared with the prior decline. No further breakdown or drivers were provided in the data release shared here.

What The Import Surge Does And Does Not Prove

This 14.1% jump in March imports is a notable upside surprise versus the prior month, but on its own it does not automatically imply the economy is overheating. Without detail on categories (consumer goods vs capital equipment vs intermediate inputs), price effects, seasonal factors, or one-off shipments, it is difficult to map the increase cleanly to “hot” domestic demand.

The latest inflation figures for the first quarter of 2026 already came in sticky at 3.5%, above the RBA’s target band. Even so, it is a stretch to say this import print will “almost certainly” force a materially more hawkish stance by itself; the RBA typically weighs a broader set of indicators (labour market, wages, consumption, housing, inflation expectations, and activity) and will likely want confirmation that higher demand is persistent rather than temporary. Markets may lift hike odds at the margin, but pricing “at least one hike before end-Q3” should be treated as scenario-based rather than a base case from this single release.

For currency traders, the implications are mixed. Higher rate expectations can support AUD, but a bigger import bill can mechanically weigh on net exports and may matter if it signals weaker terms of trade; at the same time, risk appetite, China-linked growth signals, and commodity prices often dominate AUD/USD. If expressing a bullish AUD view, call options can cap downside, but sizing should reflect that the signal quality here is limited without the breakdown and without follow-through in subsequent data.

In the rates market, a repricing toward a tighter RBA path could push yields higher, but the clean short-bond trade depends on whether the market is currently underpricing inflation persistence and whether subsequent prints (CPI, wages, labour, retail) corroborate stronger demand. If this import surge is capital goods tied to investment, the growth impulse could be different than if it is consumption-led, and that distinction matters for how far the front end and belly of the curve move.

We remember how in mid-2025, the conversation was dominated by when the RBA might start cutting rates. That shift in narrative can flip quickly, but it is still worth separating “narrative change” from “reaction function change”: one monthly trade statistic, especially without composition, is usually not enough to declare cuts “completely off the table” in a durable way.

Portfolio Implications And Key Confirmations To Watch

This surge also aligns with reports of stronger industrial activity out of China, which has supported iron ore prices. If the import rise is driven by mining-related machinery and equipment, that would be more consistent with an investment upswing than with households overheating—and it could be less inflationary than suggested, depending on capacity and productivity effects. Confirmation would require the import category detail, business investment indicators, and mining capex commentary.

For the ASX 200, higher yields can pressure rate-sensitive sectors like technology and real estate, but index-level effects will also depend on the banks and miners, which can react differently under a “higher for longer” regime. If hedging, index puts can work, but it is sensible to calibrate tenor/strike to upcoming catalysts (RBA meeting, CPI, labour force) rather than assuming a straight-line move from this import print alone.

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Australia’s trade balance for March was 1,841 million month on month. This was below the forecast of 4,250 million.

The result indicates a smaller trade surplus than expected. The difference between the forecast and the outcome was 2,409 million.

Implications For Growth And The Australian Dollar

The sharp miss on the March trade surplus confirms our view that the Australian economy is cooling faster than expected. This points to significant downward pressure on the Australian dollar as it signals weakening external demand for key exports. We see this as a primary theme for the coming weeks.

This data, combined with last week’s softer-than-expected Q1 CPI print of 3.4%, makes it very unlikely the RBA will consider another rate hike. Instead, the focus will shift towards the timing of potential rate cuts later in the year. The market is now pricing in a higher probability of a cut before the end of the year, a marked change from just a month ago.

The weakness is heavily tied to China, as their latest manufacturing PMI data released on May 1st dipped back into contractionary territory at 49.8. We are also seeing this reflected in commodity prices, with iron ore futures slipping below $95 per tonne for the first time this year. These are clear signs that demand from our largest trading partner is faltering.

This pattern is reminiscent of the slowdown we saw throughout the middle of 2025, when concerns over China’s property sector led to a sharp commodity sell-off. At that time, the AUD/USD pair fell over 8% in a single quarter as export revenues tumbled.

Positioning And Key Risks To Monitor

Given this outlook, we should consider buying AUD/USD put options with July and August expiries to position for further downside. For those wanting to reduce premium costs, a bear put spread targeting a move towards the 0.6200 level would be a prudent strategy. This allows us to bet on a fall while defining our risk.

We should also look at shorting AUD futures contracts as a more direct expression of this bearish view. This weakness in the trade balance might also present opportunities to short futures contracts on commodities like metallurgical coal, which are highly sensitive to Australian export volumes.

Moving forward, we must watch the next RBA meeting minutes and China’s industrial production data very closely. Any further confirmation of economic softness in these releases will reinforce the short-AUD position. We will also be monitoring next month’s trade figures for any sign of a trend developing.

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The People’s Bank of China (PBoC) set the USD/CNY central rate for Thursday at 6.8487. This compares with the previous day’s fix of 6.8562 and a Reuters estimate of 6.8087.

The PBoC’s main monetary policy aims are price stability, including exchange rate stability, and supporting economic growth. It also works on financial reforms such as opening and developing financial markets.

Institutional Role And Governance

The PBoC is owned by the state of the People’s Republic of China and is not an autonomous institution. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, helps shape its management and direction, and Pan Gongsheng holds both that post and the governor role.

The PBoC uses tools including a seven-day reverse repo rate, the medium-term lending facility, foreign exchange intervention, and the reserve requirement ratio. China’s benchmark interest rate is the loan prime rate, which affects loan, mortgage, and savings rates and can also influence the renminbi’s exchange rate.

China has 19 private banks, including digital lenders WeBank and MYbank. In 2014, China allowed domestic lenders fully funded by private capital to operate in the largely state-led sector.

Given the People’s Bank of China’s dual mandate for stability and growth, we see its current actions as a delicate balancing act. The central bank is signaling a desire for a stronger yuan by setting its daily fix stronger than market expectations, yet the currency continues to face pressure. As of early May 2026, the USD/CNY is trading near 7.32, reflecting broad strength in the US dollar and concerns about domestic growth.

Market Implications And Trading Considerations

Recent economic data gives us a clearer picture of the pressure facing policymakers. First-quarter GDP growth for 2026 came in at 4.8%, just missing the 5% target, and April’s inflation figures remain muted at a 0.5% annual rate. This follows a pattern of moderate stimulus we saw throughout 2025, where the PBOC favored targeted cuts to support the economy without fueling major capital outflows.

With this backdrop, we anticipate the PBOC will likely use its policy tools, such as a cut to the Reserve Requirement Ratio (RRR) for banks, in the coming weeks. This would inject liquidity to support economic activity, a move made more palatable by the low inflation environment. Such an action would signal a clear priority for domestic growth.

For traders focused on interest rates, this points toward positioning for lower rates in China. Derivatives like Chinese government bond futures could appreciate in value if the central bank follows through with an RRR or Medium-term Lending Facility rate cut. This is a direct play on the expectation of monetary easing to stimulate the economy.

However, any easing measure will complicate the PBOC’s goal of maintaining a stable yuan. A rate cut would likely increase downward pressure on the currency against the dollar. This tension means we should not expect the central bank to allow for a rapid depreciation.

This managed approach suggests that currency volatility may remain contained. A viable strategy could involve using options on USD/CNH, such as selling strangles, to bet that the exchange rate will stay within a predictable range defined by PBOC intervention on one side and economic pressures on the other. We saw this strategy work well for periods in 2025 when the bank defended the 7.35 level.

The primary risk is that the PBOC prioritizes currency stability above all else, delaying any significant stimulus. In this scenario, traders could use call options on USD/CNY as a hedge or a direct bet that economic gravity will eventually force the currency weaker, despite the bank’s efforts. This acknowledges the possibility that the daily fixing is more of a signal than an unbreakable line in the sand.

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Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said he will closely monitor foreign exchange markets. He declined to comment on intervention or specific currency levels.

He said he has daily contact with US authorities and that they are aware of his views. He added that the IMF classification of a free-floating regime does not limit how often Japan can intervene.

Yen Moves And Official Messaging

At the time of writing, USD/JPY was trading around 156.30, down 0.08% on the day. Mimura also said he would not comment on forex rates.

The Bank of Japan is Japan’s central bank and aims for price stability, with an inflation target of around 2%. It issues banknotes and carries out currency and monetary control.

In 2013, the BoJ began an ultra-loose policy using Quantitative and Qualitative Easing, buying assets such as government and corporate bonds. In 2016, it added negative rates and yield control on 10-year bonds, then lifted rates in March 2024.

BoJ stimulus weakened the yen, with further falls in 2022 and 2023 as other central banks raised rates. The policy shift in 2024 partly reversed that trend, after inflation moved above 2% alongside a weaker yen and higher global energy prices.

Options Volatility And Intervention Risk

With USD/JPY now trading at 162.50, we see that the warnings from officials are becoming more frequent, much like they did back in 2025. These statements are a clear signal that the Ministry of Finance is uncomfortable and verbal intervention is the first line of defense. The market is being put on notice that one-way bets against the yen will face resistance.

This constant threat of sudden government action means implied volatility on USD/JPY options will likely remain elevated. For derivative traders, this makes selling short-dated yen puts an extremely risky strategy, as a surprise intervention could cause a sharp drop in the pair. Instead, buying options to protect against or profit from these sudden moves is the more prudent approach in the coming weeks.

Looking back, the Bank of Japan’s slow move away from its ultra-loose policy has only brought its key rate to 0.50%, which is still minor. The interest rate difference with the US, where the Fed funds rate is now 3.75%, remains the primary driver pushing the yen lower. This underlying pressure suggests that any intervention-driven yen strength may be temporary.

We remember the large-scale interventions in the spring of 2024, where authorities spent an estimated ¥9 trillion to support the currency when it crossed the 160 level. This history shows they have a pain threshold and are willing to act decisively, even if the effects don’t last forever. The current level puts us firmly back in that same territory, making a repeat action highly probable.

Therefore, using derivatives to structure trades with defined risk is critical right now. Buying JPY call options (or USD/JPY put options) offers a direct way to profit from a potential intervention with limited downside. This strategy acts as a hedge against long USD/JPY positions or as a standalone speculative bet on the Ministry of Finance stepping in.

Japan’s core inflation, which registered 2.4% for April 2026, continues to run above the bank’s target, adding another layer of complexity. While this supports the case for further BoJ rate hikes later this year, it does little to solve the immediate problem of currency weakness. For now, the focus should be on the government’s actions, not just the central bank’s slower policy adjustments.

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USD/JPY stayed range-bound in Thursday’s Asian session after rebounding from its lowest level since 24 February, near the 155.00 level. It traded just below the mid-156.00s, little changed on the day.

The yen found support from expectations of further official action and the Bank of Japan’s policy outlook. Vice Finance Minister for International Affairs Masato Mimura repeated that authorities are closely watching foreign exchange markets.

Yen Support And Intervention Watch

Intervention reports said Japan may have spent up to ¥5.48 trillion ($35 billion) buying yen after USD/JPY moved above 160.00 last Friday. This added to speculation that officials may act again if moves become disorderly.

Minutes from the BoJ’s 18–19 March meeting showed members still saw further rate rises as appropriate if the economic and price outlook is met. The minutes said decisions will be made meeting by meeting, based on wages, prices, and the Iran situation.

The US dollar stayed weak as markets focused on possible US-Iran talks progress. Donald Trump said talks made progress over the past 24 hours and that Iran wants a deal.

Axios reported, citing two US officials, that the White House was nearing a deal with Iran on a one-page memorandum of understanding to end the war. Uncertainty about disagreements over Iran’s nuclear programme limited active positioning in USD/JPY.

Looking Back At 2025 And Into 2026

We recall the struggle around the 155.00 mark back in 2025, which ultimately proved to be a temporary floor for the currency pair. As of today, May 7, 2026, the USD/JPY is trading much higher, around 162.50, showing the underlying strength of the dollar has persisted. The factors we watched then have evolved significantly over the past year.

The threat of intervention we saw in 2025 has become a reality multiple times, with the Ministry of Finance reportedly spending a record ¥9.8 trillion during a single week in late 2025 to defend the yen. Despite this, the pair continues to grind higher, suggesting the market is absorbing these flows. This makes short-term options strategies that benefit from volatility attractive, as one-month implied volatility for USD/JPY has climbed to over 12% on the expectation of sudden, sharp moves.

While the Bank of Japan did follow through on its hawkish hints from 2025 with two small rate hikes, its policy rate now sits at only 0.25%. In contrast, the US Federal Reserve has held its benchmark rate firm at 5.50% as recent US CPI data continues to hover stubbornly above 3%. This massive and persistent interest rate differential provides a strong incentive for traders to maintain long USD/JPY positions through carry trades.

The optimism for a comprehensive US-Iran peace deal that we saw in mid-2025 has largely faded, with negotiations stalling over key issues. This removes a significant headwind that was previously capping the US dollar’s strength. Consequently, traders should be cautious about pricing in any sudden USD weakness based on geopolitical de-escalation in the near term.

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WTI, the US crude oil benchmark, traded near $93.25 in early Asian hours on Thursday, falling below $93.50. The move followed hopes of a deal linked to ending the war with Iran.

Bloomberg reported that the US and Iran are working on a preliminary framework for an agreement. US President Donald Trump said the US has had “very good talks” with Iran over the past 24 hours, and said there is no deadline for a reply from Tehran.

Strait Of Hormuz Supply Outlook

Expectations that the Strait of Hormuz could reopen also weighed on prices. The strait is a major global route for oil shipments, and reopening would support steadier supply flows.

US crude inventories continued to drop, based on the Energy Information Administration’s weekly report. Stockpiles fell by 2.314 million barrels for the week ending May 1, after a 6.233 million-barrel fall the prior week, versus a 2.8 million-barrel expected decline.

Goldman Sachs said global oil inventories are near their lowest level in the past eight years. The bank also noted a rapid draw in reserves alongside limited supplies.

With WTI crude currently trading near $102, the market is tense, balancing tight supplies against renewed rumors of diplomatic talks concerning maritime security in the Persian Gulf. This creates a challenging environment where fundamentals point one way while headline risk points another. Derivative traders should be positioned for sharp, sudden price swings in either direction over the next few weeks.

Options Strategy For Volatility

We remember a similar situation last year, looking back to early May 2025, when prices briefly fell below $93.50. That dip was caused entirely by the hope of a US-Iran deal, even as underlying inventory data showed a tightening market. The market’s memory of this event suggests any positive geopolitical news could trigger an aggressive, albeit potentially temporary, sell-off.

The fundamental case for higher prices remains strong, arguably more so than last year. The latest EIA data from May 5th, 2026, showed a surprise crude draw of 3.1 million barrels, and OPEC+ reports this quarter indicate global stockpiles are now 15% below the five-year average. This underlying tightness suggests any price drops driven by political rumors may be short-lived and represent buying opportunities.

Therefore, a key strategy is to use options to manage the expected volatility. Buying call options can capture the upside potential if fundamentals reassert themselves, while holding some puts can provide a hedge against a sudden peace-driven price collapse. We see the market punishing short-term speculators who ignore the critically low global inventory levels.

Adding to the bullish case is robust demand, particularly from Asia. Recent data from China’s National Bureau of Statistics showed factory output for April 2026 exceeded forecasts, signaling stronger than expected energy consumption. This demand floor makes a sustained price collapse less likely, even if geopolitical tensions ease.

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