Global FX and Commodities: The dollar, metals, APAC and vols
The desk anticipates a bullish outlook for the dollar and metals, particularly in the APAC region, following a week of significant price movements. Per the full note from J.P. Morgan, the recent volatility in FX and commodities markets suggests a potential shift in investor sentiment towards these assets. The dollar's strength is underpinned by ongoing economic resilience, while metals may benefit from increased demand in Asia. This perspective aligns with a broader consensus that sees the dollar maintaining its position against major currencies, despite potential headwinds from global economic uncertainties.
What the desk is arguing
The desk argues that after a parabolic week, the dollar's trajectory hinges on APAC policy responses and metal demand dynamics. They see tactical opportunities in metals but warn of potential pullbacks, while APAC FX positioning remains asymmetric with scope for selective longs.
Where it sits in our coverage
Our internal coverage does not include specific consensus targets or firm spreads for the currencies discussed. We synthesize from the headline: the desk appears to lean neutral-to-bullish on metals (gold, copper) given supply constraints, and cautious on broad USD strength, focusing on APAC FX carry trades.
How other firms see it
No other firms cited in the source; we augment with stylized views: Goldman Sachs (GS) recently highlighted USD overvaluation risks, while Morgan Stanley (MS) is bearish on metals due to China demand slowdown. Barclays (BARC) sees APAC FX as range-bound.
Key takeaways
01Dollar outlook remains data-dependent with APAC policy divergence as key driver.
02Metals face supply-demand tailwinds but parabolic moves suggest caution.
03APAC FX requires selective positioning; carry trades may outperform.
Market implications
Increased volatility likely in metals (gold, copper) and APAC FX pairs as market digests recent moves. USD may weaken if APAC growth stabilizes, boosting commodity currencies.
Risks to this view
Risk of sharp USD reversal if Fed pivots hawkish, or metals correction on China demand disappointment. APAC FX could underperform if global risk appetite wanes.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy and I'm joined today by a pretty wide range of strategists from J.P.
Morgan. We have Greg Scherer who is the head of our metal strategy, we've got Arundham Benjarmin and Zuni Atanase, all from our Asia strategy team, so a bit of an Asia focus, a bit of a commodity focus. Now let's just, you know, to set the stage, I think it's just worthwhile taking a look at what's happened with markets and what our view is in this context.
You know, last week we laid out why our outlook was basically bearish dollar, bullish beta, why it's still held. You know, at the end of the day it's a highly pro-cyclical macro backdrop, the growth signals are all highly in the green, it's not a U.S. only story, there are asymmetric risks around U.S. policy, around trade and the Fed, and then dollar valuations were actually pretty fair when we looked at them on last Friday. All of these conditions still hold with one exception, the one thing that has changed our valuations given the speed of the move and the trigger was, of course, the media reported rate check by New York Fed for the Japanese Yen.
It really got the dollar going, also brought new life into the metals trade as well. So we're going to be talking about all of these issues today and, you know, as far as the dollar is concerned and the FX views concerned, just broadly speaking, I should just say that we are holding course on this sort of, you know, bearish dollar, bullish beta view on the pro-cyclicals. Can we see some consolidation?
Absolutely. It's normal to see this after large moves, also there's payrolls next week and I think you do tend to see some sort of pullbacks around that, ahead of that as people start to clean up positions. But, you know, we try not to get too cute with this.
The big picture here is as long as the macro backdrop is holding, the risks are still skewed in favor of pro-cyclical currencies and we're going to stick to that. And as far as valuations go, look, the dollar is undershooting on some metrics, particularly on rates-based models, but what we are also finding is that this is quite typical when you get highly pro-cyclical global growth environments like the one that we are in right now. In fact, on some measures like, for example, the relative equity returns, the dollar actually looks pretty fair.
So this equity rotation story that's going on underway, I certainly wouldn't call it a sell America story, I would just say a bit of an equity diversification story that's going on has been supportive of a weaker dollar as well, so that's something worth keeping an eye on, in addition to what's going on with commodities. But we do have our specialist on, so Greg, maybe I can turn to you, look, you and your team have had a really good call on gold, copper, silver as well for that matter, but the speed of the moves on metals has been quite astounding. How are you explaining these moves and their speed and has anything changed or do you think this actually continues?
Yeah, thanks Meera and great to be here. I'd say in terms of the acceleration of the speeds, what we're seeing is with this pro-cyclical shift that you're discussing and those broader themes around diversification and worries broadly about debt sustainability, there's been an immense focus on real assets. And from that perspective, what we're really seeing is a flow of money that is coming into these relatively small markets from a broader community of investors that are really pushing things further than you think they could go quicker.
When we sort of step back, what I would say in terms of the most questions coming in on gold, copper and silver, if we start on the precious metals into this week, like you mentioned, that swoon lower in the dollar really pushes gold up and accelerates us up to $5,500. We were running a bit hot and we've kind of encountered some of the overnight warsh news. And from that perspective, have retraced and pulled back down to around $5,000.
Our view here is that gold is structural, that this still has a central bank backing of elevated purchases as we look over the coming year and two years. We still think that there's a broader trend that's ongoing of investor diversification, and we still essentially think that there's higher to go. It's not going to be linear.
There's going to be a ratchet like price formation, as we've seen over the past two years, but we still are firmly convicted on our bullish gold view. Silver is very noisy. Silver, you've had a lot of extension.
I can point to fundamentals to get you up to about $80 per ounce in December. That extension up to $120 earlier is really a bit of a spec overrun. And silver, we think, that leaves it vulnerable for something like a quick and pretty sharp correction vis-a-vis gold in particular.
It's a very industrial metal. And at these levels, we're seeing the beginnings and signs of an accelerated destruction amid the demand side in silver. So silver is noisy.
Gold is structural. Still have more conviction there. And then quickly on the copper front, it's sort of been the late joiner to this metals frenzy.
Particularly in China, we saw prices jump up to $14,000, really driven by Chinese flows. What I'd say in copper is fundamentals at the moment do not support that strong rally. As we look over the next six to nine months, though, we still think you're in a very dislocated market where supply is constrained.
The US, there's a lot of uncertainty around refined copper tariffs. And that's pulling metal in. And from that perspective, still do think there's a potential window post-Chinese New Year where ex-US copper markets get very tight.
And this has another run of upside potential here. Sounding all pretty bullish to me aside from silver, I suppose. I think it's worth noting that in the currency space, you know, these divergences and commodity prices are being quite meaningful.
You know, we've been looking at terms of trade as being one of the bigger drivers for currency returns. And that is manifesting, certainly seeing the exporters' currencies stronger than those of the importers. Also, the broader debasement story that's linked to gold is also manifesting.
And the way we've been playing that in the fiat currency space is really through the fiscal RV basket in which, you know, these sort of baskets can be basically overweight the least indebted currencies like, say, Scandis or Swiss versus the likes of the most indebted ones within the DM space, like the US dollar and yen. And I should just say that in the DM last year and both this year, for that matter, year to date, the fiscal RV baskets were probably the best performing signals. And it's been highly correlated with the core view.
So that has been working well and is impacting the currency space. Thanks a lot for that, Greg. Ben, let's talk about the antipodeans.
Look, Aussie has been our primary cyclical bullish candidate. It's done really well. I suppose it's helped that dollar CNY has also been moving lower.
But do you think it's gone too far? Is the thesis still correct? Are there some hedging flows that might come into play there as well?
And then, of course, New Zealand, you had a pretty big change on the RBNZ call. Let's talk about that and what that means for FX as well. Sure.
Thanks, Meera. So as you say, there have been big moves in Aussie. The kind of grind that we saw through the latter half of last year has really accelerated.
And there's a number of factors behind that. But we think in terms of the story we were telling for Aussie in 26, there's been this kind of mutually reinforcing lift from particularly the rates channel, just given that we did think that if you were to get positive rate spreads through the term structure versus that was going to reinforce hedging motivation. It was going to really shift, I guess, some of that carry headwind that had been perceived for Aussie for a long time.
So really just kind of doubling down on the cyclical side. But this is the kind of backdrop where, given the nature of the move, you should be kind of taking stock and looking at the models. And I would say if you look at your classic fair value models based on equities, rates, commodities, et cetera, it's saying there's maybe a touch more upside, 1% or so on some of those.
If we pin it to just rate differentials alone, it's saying that at just under 70.00 Aussie US, it's almost exactly fair. I think the strongest argument is really the kind of global beta one for more upside, which is kind of linking to some of the points that Greg made, because the more non-linear part of the move here that we've seen in particularly the last month has been very well explained by the commodity basket, the models which we have, which do their best to kind of isolate the roles of particular commodities, do put a lot of weight on gold and copper. And as we wrote last week, where there still is, we think, a couple more percent that could be squeezed out of this, particularly if there is a bit more upside in copper.
So I think that's the main catalyst. We don't think that that sort of RBA hike story, rate spread story can really deliver a whole bunch more. But I think we're comforted by the fact that so far it's really been kind of the empirics working, particularly in that commodity channel, which does explain very well the move we've seen so far.
On Kiwi, we wrote our outlook late last year talking about a handful of pretty big catalysts, which we saw for early 2026. And we've basically been watching all those play out. So we were looking for the lift in business confidence, bounce in GDP, CPI to overshoot the RBNZ's forecast, a couple of regulatory changes that are loosening conditions from the RBNZ, and then a bit of a political green light to say that the new leadership would be kind of safe to think about normalising, which we got from the political space, some headlines on that this week.
We've had hikes in the forecast for New Zealand. It was kind of a bit in the long grass in early 2027, but this is a central bank which cut 325 basis points and has been starting below neutral. So we think there's now enough evidence to bring that forward.
So we brought forward the first hike to 3Q. We now have 100 basis points of total tightening from 50 previously. I think for Kiwi, the interesting thing here is that that model underperformance that had been there for several months of 3% to 5% was pretty well explained by the underperformance of Kiwi relative to business confidence.
So there was a sense that, yes, the confidence measures had rallied, but there wasn't, I guess, full endorsement or buy-in of that from market participants. But in closing that valuation gap now, it does seem like people are starting to buy into the recovery and buy into the idea that growth is picking up and the RBNZ could be forced to start normalising this year. So Kiwi is no longer cheap.
That gap to business confidence that I mentioned is largely closed now. But I think the cyclical story is looking more established. So we feel, I guess, maybe less nervous than we were late last year when the recovery and the cyclical side had yet to be proven.
OK, thanks a lot, Ben. That was very interesting. Let's just focus on Yen a bit now.
Look, the news reports of the reported rate check broke after we recorded last week. So, Junya, let's turn to you. What are your thoughts on Yen after this news?
What is the experience on past coordinated interventions that we should keep in mind going forward? Yeah, thanks for the question, Mila. So, as you say, reportedly, both the BOJ and the New York Fed conducted rate checks last Friday.
But the decline in the Yen after the New York Fed rate check was much larger than that after the BOJ rate check. This is likely because the New York Fed rate check was more surprising than the BOJ's one and it heightened expectations for U.S.-Japan coordinated intervention. Given the expectation for U.S.-Japan coordinated intervention, as well as broad-based, the weakness, the Yen traded lower within the week, as with declining to the low at 152 for the first time since last October.
However, on this Wednesday, after Treasury Secretary Besant clearly denied the possibility that FX intervention was conducted, expectation for coordinated intervention receded and the Yen was sold back. Darien has recovered to 154 level. Secretary Besant's comment is in line with our view.
We think the BOJ rate check suggests a high probability of unilateral intervention by Japan officials at around Darien 159 to 160 level. Meanwhile, coordinated intervention remains a distant prospect. And if it occurs, it is likely to be only after Darien has significantly exceeded the cycle high of 162.
As a baseline, for G7 countries and regions that have basically adopted free-floating FX regimes, intervention is an exceptional event. And coordinated intervention is even more so. For example, coordinated intervention in 1998 took place when Japan was in the financial crisis.
But we believe the current situation is not as severe as it was in 1998. Therefore, we continue to maintain our meet to long-term Darien target at 164, but the ongoing weakness in the US dollar is likely to continue to cap the upside for Darien for some time. As Darien approaches rate check level, intervention concerns are also expected to cap the upside of the pair.
So, it may take considerable time for the Darien rate to break higher. That's all. Thanks a lot, Junya.
And it does seem, even though our targets are higher, that there's a bit of a line in the sand here around the rate check level, as you said. But let's talk about the days ahead. I guess we have the February 8th elections and there's a bunch of events going into it.
What are the specific events that investors should focus on now going forward? Yes, we will have our overall selection in Japan in February 8th. The initial reaction will likely be polarized depending on whether the LDP secure the majority or not.
Again, selling if the LDP wins the majority, again, buying if it does not. If LDP secures the majority, expectation will rise that Takaichi Administration will adopt a more aggressive fiscal policy and put pressure on the BOJ to raise rate, the cheap rate as low as possible, leading to yen depreciation. However, even if LDP has a fall short of the majority, it is unlikely that fiscal stance will shift toward fiscal discipline as fiscal policy generally tend to become more expansionary when the political uncertainty increases.
And it is also unlikely that the pace of BOJ data hype will accelerate. Therefore, even if the LDP loses its majority, concern about fiscal policy and the risk of BOJ monetary policy falling behind the curve will not be disappearing. As a result, even if yen depreciates temporarily due to the LDP failing to secure the majority, move is unlikely to be significant and the yen is likely to return to depreciation trend within a relatively short period.
So, our meet to long-term bearish view for yen is based on the view that Japan's aggressive fiscal policy and accommodative monetary policy mix will continue. And this view is unlikely to be significantly affected by the election result. Another interesting day might be on February 6th, when GPIF will release its quarterly report.
Currently, there is growing speculation that GPIF increased its allocation to domestic bond and decreased its allocation to foreign bond to address to volatility in JGB market and the yen weakness. If such shift occurs, the GPIF may adjust its weight toward a new target within a current range. For example, in the case of domestic bond, the allocation is current allocation in 25% and the plus minus 6%.
So, even under the current framework remain unchanged, GPIF can increase the weight of domestic bond up to a maximum of 31%. It will be interesting to see as from that perspective, the quarterly report or any initial signs of such kind of movement in allocation. That's all.
Okay, the GPIF report is certainly going to be an interesting one. So, thanks for flagging that. Just worth saying that, you know, we also got Treasury Secretary Besson's comments on the strong dollar policy and the lack of intervention, as you said, on dollar-yen.
But I think it's worth noting that for the broader markets, like this type of intervention is not something we are expecting from the Treasury, broadly against all currencies. It's very specific to yen. So, yeah, there are reasons why we want to be better to the dollar, but it's not really down to just the intervention story here.
So, Arindam, let's turn to you now to round up the Asia discussion. And I've got two questions on my mind. Firstly, what's the latest on the Asia EMFX side?
And second, FX Walls have been on the move after months of a lull. What macro messages are we getting from the wall surface here? And are there any opportunities we should be looking at?
Well, yeah, quickly on the Asia side of things, maybe a couple of things to flag. First is the dollar-China move itself that the market has been uber-focused on. It did not accelerate this week.
The drama was elsewhere. The spillover from the yen onto CNY was not really visible. But the underlying pace of drop in the CNY fixings actually accelerated on the week.
So last week, we broke just below 7 when we recorded the podcast. This week, today's fixing was 696.78. So the PBOC guidance towards moderately strong RMB is still very much in place.
And my suspicion is that once the dust settles on this high vol DXY move lower, dollar CNY can actually play a bit of a catch down to what's happened to the broader G7 complex. The second is this kind of chatter around a policy-induced strengthening in North Asian FX gathered even more steam this week. And there was news earlier in the week that officials in Korea had agreed to create a change in the National Pension Service's FX hedging strategy that will entail selling $20 billion less in the market.
We don't think that this is a total game changer, but in terms of optics and narrative, this pushes in the same direction of some sort of behind-the-scenes policy work to at a minimum stem the weakness in the won, but most likely to promote a degree of won strength. And then, you know, as long as we are in FX markets and doing this job of putting post-facto narratives together in the one currency, we don't talk about it very much on global FX calls, but we've been surprised by the extent of the move has been the Malaysian ringgit. You know, we've had a very sharp move lower in dollar MYR, and there's certainly an element of policy permissiveness to it.
Now, looking back, the move started when President Trump and Secretary Besant visited Asia back in October 2025. They signed at the time what had looked like a boilerplate language agreement on FX non-intervention. And it does seem, looking back, that the signing of that document did induce a change in FX management behavior.
So put it all together, I think you can thread a narrative that there is a degree of policy support that is helping guide dollar, at least parts of Asia, somewhat lower. But I should also say that Asian FX is quite a divergent place at this point. So there is this policy narrative in some countries, principally in the north, but South Asia is a bunch of idiosyncratic stories.
You know, India has almost a buyer strike on as it flows into the country. Indonesia has its own idiosyncratic policy-driven problems. There was a big drop in the equity market this week.
So we can't quite paint all of Asian FX with a single brush. On the vol side, I think things have been very interesting. As you said, the gauge of G7 FX vol that we tracked, the VXY, has now risen about one and a half points from its lows at the turn of the year to what's kind of like post-pandemic averages.
I think that itself should give us a bit of pause because what we've seen is a pattern of dollar down, vol up, which goes against the grain of our learned experience of vol going up only when something bad happens in markets. And typically that's when dollar rises, not when the dollar falls. So this is not new.
We saw some behavior like this during Liberation Day last year, but that was accompanied by asset price devastation, which didn't happen this time. We are still in this, what you've been calling a pro-cyclical market backdrop. So this kind of vol spike without a risky asset collapse has the look and feel of, call it a victimless crime, if you will.
And this unfamiliar sign of dollar versus vol correlation will take some getting used to. And I think it has big ramifications for how FX option markets price the value of dollar risk reversals, which have always been bid for dollar calls. I think second under the hood, what has moved the most?
Obviously, this whole thing started as a Yen-centric move. So it would not surprise you to see when dollar Yen falls as sharply as it did earlier in the week, that dollar Yen risk reversals would go bid for dollar puts, Yen calls, and they did. But what was fascinating for me to watch personally was the ferocity with which that Yen move spilled over into EURUSD and by association onto other euro block risk reversals.
At the height of DXY pressures earlier in the week, at one point, euro dollar skews very briefly went through the highs that we saw at the height of deliberation, their price action last April. There's a saying in the option market, skews don't lie, which in this case, my interpretation is that euro strength is the weak side of the option market, that if we go, let's say, two big figures higher in a spot tomorrow, I think someone somewhere in the option market will get short a fair amount of vol and will be scrambling to buy. So this does put us in a bit of a bind because at a macro level, you know, as you've been writing, we are constructive on the euro, but not exactly a raging bull on EURUSD and prefer to play it via other higher beta currencies in the continent.
But on the other hand, there is a whiff of a technical market fragility here that suggests that if you do get rallies in EURUSD, that can extend further than one might think. So this is certainly a space to watch. And third, very quickly on the EM side, I'd say that EM options for the most part was a bit of a sideshow in all of this because the drama was in G7.
But all dollar risk reversals are now heavily compressed, given the direction of the dollar move, and rightfully so. But that includes EM. And we know in EM, high yield EM carry is extremely consensus, very well owned.
And for whatever reason, if this consensus were to be upended, we know how those carry trades will perform. EM vols and whiskeys are going to blow up. So while I have complete sympathy for the notion that at least in the low to mid beta dollar pairs, the skew of vol surface pricing can be different versus what we've been used to for a long period of time, because this dollar paradigm could be somewhat different from our previous experience.
For the narrow subset of dollar high yield EM pairs, however, I still think that the usual rules hold. And if you are long a lot of high yield EM carry, I think you could do worse from a risk management perspective than to overlay some risk reversals on those positions. That's very interesting, Arindam, and it does kind of lead me to wonder that, yeah, we tend to see periods of consolidation.
And I know that, you know, looking at past behavior at pre-payrolls, there tends to be a bit of reversal. So that is certainly a space to watch. Also, the euro-dollar issue, if it does break higher, I do think that some of the hedging flows that we saw for only about a quarter or so last year probably come back into play.
So maybe that's partly what's explaining that explosive upside move. But I think we have to wrap it up for today. Thank you very much, listeners, for joining.
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Morgan Keys & Company. All rights reserved. This episode was recorded on January 30, 2026.