Nomura FX Insights: Sensitivity to Oil and Equities Amongst G10 FX

Nomura's FX strategy team assesses how G10 currencies are reacting to Middle East tensions, noting that movements are primarily driven by risk sentiment and oil prices. The US dollar's behavior as a traditional safe haven has become less consistent, with recent correlations between the dollar and oil prices turning broadly negative.

However, historical data indicates that the dollar typically outperforms when sharp equity sell-offs coincide with surging oil prices, as demonstrated in 2022. Currently, many standard market relationships hold: the Norwegian krone and Canadian dollar exhibit positive sensitivity to oil, while the Swiss franc and Japanese yen display classic safe-haven behavior.

Nomura highlights that these sensitivities often offset each other directionally. For example, rising oil prices tend to weaken the yen, but an ensuing equity market sell-off strengthens it. Given these complex and inconsistent market dynamics, the firm has shifted its focus toward relative value trades, which offer positive asymmetric risk.

Specifically, Nomura maintains a long EUR/GBP position, which tends to rally quickly during US equity sell-offs while offering limited downside during market rallies. The firm also recommends a long NOK/SEK position to capitalize on rising oil prices and potential Strait of Hormuz disruptions. Nomura has closed its long AUD/USD position, citing crowded positioning and weakening risk appetite.