The Dollar Index strengthened as higher US yields and renewed geopolitical tensions supported safe-haven demand, while iFlow data pointed to FX inflows into USD alongside risk-off positioning across bonds and equities. President Trump proposed broad new tariffs, adding trade and inflation risks and providing further backing to the greenback. The plan sets duties of at least 10% on imports from 60 trading partners, with Canada, Mexico, the EU, Taiwan and the UK facing a 10% rate, while China, India, Japan, South Korea, Brazil and Switzerland would be charged 12.5%. The measures are not immediate and will be subject to public comment and hearings before being finalised.
Flow data showed outflows concentrated in DKK, CAD, NZD and TRY, followed by BRL and CLP, while inflows favoured USD, JPY, MXN and ZAR, alongside EUR and GBP. iFlow Mood stabilised as June began but remained firmly risk-off, marked by continued equity outflows and sustained demand for core government bonds. Oil prices rose for a third day, pressuring global shares and US equity futures as the US-Iran conflict drove bond yields and the dollar higher. In macro data, China’s services PMI reached a three-month high, whereas Australia’s Q1 GDP undershot expectations.
Dollar Strength, Tariff Risks, And FX Positioning
Given the current environment, we see a clear strengthening of the U.S. dollar, driven by higher yields and geopolitical uncertainty. The Dollar Index (DXY) has recently broken above the 106.50 level, reflecting this broad-based demand. We believe derivative strategies should be positioned for continued dollar strength and overall market risk aversion in the weeks ahead.
The proposed tariffs introduce significant risks for the currencies of major U.S. trading partners, especially export-dependent economies. We are particularly focused on the Canadian dollar, which has weakened past the 1.3800 mark against the USD. Traders should consider buying call options on USD/CAD or selling futures on currencies like the New Zealand dollar, which are showing persistent capital outflows.
Risk-Off Sentiment, Equity And Bond Market Strategies, Oil Outlook
The risk-off sentiment is clearly visible in equity markets, creating opportunities for bearish positions. The VIX index has surged over 35% in the past two weeks, now trading near 20, a level historically associated with market stress. We recommend buying put options on major indices like the S&P 500 to hedge against or profit from a potential downturn as these trade tensions escalate.
We also see conflicting pressures on U.S. bond yields, with safe-haven buying pushing them down while inflation risks from tariffs push them up. This suggests a period of heightened volatility in the rates market. Using options like straddles on 10-year Treasury note futures (ZN) could be an effective way to trade this expected turbulence without picking a specific direction.
Finally, escalating conflict between the U.S. and Iran is providing direct support for crude oil prices. WTI crude futures have now rallied above $88 per barrel, the highest level in over six months. We anticipate this trend will continue, making long positions in oil futures or call options on energy-related ETFs a compelling trade.
