Asia open: The risk-on reversal no one saw coming — Until it hit

Markets opened Monday strapped into a geopolitical rollercoaster, bracing for fireworks, and by the close, they were ordering champagne. Crude staged a 13-point round trip, the dollar slipped on its own shadow, and equities did a victory lap. It was one of those sessions where positioning got torched, narratives got rewritten, and anyone trading yesterday’s headline got whiplashed.

At the open, the fear trade was in full command: Brent crude spiked 6%, airspace in the Gulf closed like a vault, and the dollar surged on the back of “what if” scenarios around Hormuz. Iran had just been hit, and retaliation risk was priced like this was just the start of the spiral.

But Tehran played it cool. Their “retaliation” hit a U.S. base in Qatar—loud enough for headlines, quiet enough not to shake the oil market’s foundations. Tanker lanes stayed open. No threats to Hormuz. It was a counterstrike with the safety on. And once that became clear, the war premium came crashing out of crude. Brent dropped 7%, slicing through its 200-day like a wet paper chart, while equity markets smelled the all-clear and hit the accelerator button.

What turned the U.S. close into a textbook risk-on melt-up wasn’t just relief—it was a macro handoff. As oil collapsed, attention snapped back to the Fed. And what it saw was a policy pivot gathering steam not just from the usual doves—Waller and Goolsbee—but from Vice Chair Michelle Bowman, a card-carrying hawk. For her to float a July rate cut was a flashing signal: the center of gravity at the Fed is shifting.

If the oil shock fizzles, and inflation expectations don’t get re-anchored higher, then soft labour and sluggish growth retake the driver’s seat. Monday’s move wasn’t just a sentiment bounce—it was a signal that the market now sees easing as less conditional and more imminent.

That tees up Powell’s Congressional testimony this week as the next inflection point. Will he defend the dot plot? Join the dovish drift? Or play it safe and try to thread the needle? The risk isn’t what he says—it’s how the market hears it.

The dollar’s breakdown has shifted from a slow bleed to a structural shift. It's staring down its worst first-half since 1986, and this isn’t just noise—it’s positioning. Real money in Europe is reducing USD exposure, increasing hedge ratios, and redeploying globally. However, the real damage may be coming to a screen in Asia: most of the recent dollar declines have occurred during Asian trading hours, indicating active rehedging by U.S. bondholders in the region.

This is the FX equivalent of “passive pressure”—not aggressive selling, but methodical de-dollarization through hedging, diversification, and reallocation that gradually grinds the greenback lower day after day. It’s not a panic. It’s a portfolio pivot.

The bond math isn’t helping. With yields softening and tariff uncertainty clouding the fiscal outlook, the incentive to stay long unhedged USD is fading. Throw in a potential AI-led productivity boom and tariff-fueled reshoring revenue for the U.S., and ironically, the dollar may be falling just as the fundamental tide is about to turn in its favour.

This is the mispricing. If Powell acknowledges the Bowman pivot and traders start to price front-end cuts before inflation rolls over cleanly, the short dollar trade has legs. However, if Trump’s tariff endgame and an AI productivity re-rating shift the narrative, that short dollar consensus could be quickly undone.

Bottom line: this market is a momentum junkie, and right now it’s chasing feel-good flows. However, beneath the surface, a macroeconomic regime shift is brewing. Miss the inflection, and you're not just behind the curve—you’re trading the ghost of a headline that no longer matters.