Key Facts
- Brent crude move
- Fell from around $86 to near $80
- US equity futures
- Rallied more than 1%
- 10-year Treasury yield
- Slipped to around 4.66%
- Bessent's deal window
- Tuesday or Wednesday
- Unresolved issue
- Tolls and sovereignty over Hormuz
- Weakest currency
- Japanese yen
Background
US Treasury Secretary Scott Bessent said the United States and Iran could reach a deal as early as Tuesday or Wednesday to reopen the Strait of Hormuz to commercial shipping. Speaking to CNBC, Bessent said, “There is a chance we may have a deal today or tomorrow to open the strait and move towards a more normalized position in this conflict.”
The remarks triggered a broad risk rally: Brent crude tumbled from around $86 to near $80, US equity futures rallied more than 1%, and the benchmark 10-year Treasury yield slipped to around 4.66%. Commodity-linked currencies such as the Australian and New Zealand dollars led gains, while the Japanese yen lagged.
Current Situation
Despite the optimistic headlines, Brent failed to break decisively below the $80 level. That hesitation suggests traders remain reluctant to fully price out the geopolitical risk premium, even as diplomacy appears to gain traction.
The unresolved question is who controls tolls and sovereignty over the Strait of Hormuz. Asked directly whether Iran would retain the right to charge commercial vessels for passage, Bessent replied that any agreement would ensure “freedom of movement” through the waterway. That formulation leaves room for interpretation and does not address Tehran's long-standing position to retain sovereign control and tolling rights once temporary arrangements expire.
Markets have seen a similar pattern before, with President Donald Trump repeatedly suggesting a breakthrough with Iran was close, only for negotiations to stall and military tensions to escalate. This history helps explain why Brent found buyers near last week's $80 low instead of extending its decline.
| Indicator | Move |
|---|---|
| Brent crude | Fell from around $86 to near $80 |
| US equity futures | Rallied more than 1% |
| 10-year Treasury yield | Slipped to around 4.66% |
Impacts
In currency markets, commodity-linked and growth-sensitive currencies benefited most from the improved risk appetite, with the Australian and New Zealand dollars leading gains. The Japanese yen was the day's weakest performer as recent intervention-driven gains started to unwind, while the Canadian dollar underperformed on falling oil prices.
Attention now turns to New Zealand's second-quarter labor market report. With inflation already exceeding the RBNZ's forecasts and domestic price pressures elevated, an employment report that merely matches expectations could reinforce further rate-hike expectations and extend the Kiwi's outperformance against the Aussie.
The euro, sterling, and Swiss franc traded largely sideways against one another as markets waited for the next decisive catalyst. The US dollar softened modestly.
Future Outlook
Scenario analysis: The possibilities below are not certain predictions.
If Tehran confirms a deal or commercial shipping visibly resumes through Hormuz under mutually accepted terms, oil prices could break below $80 and risk assets may extend gains. Conversely, if negotiations stall again, the geopolitical risk premium could rebuild, pushing Brent back toward $86.
On the currency side, if New Zealand's Q2 employment report meets or beats expectations, the Kiwi may continue to outperform the Aussie. If it disappoints, the Kiwi could weaken. The yen's trajectory may depend on whether intervention-driven gains fully unwind.
The next real catalyst for oil is confirmation from Tehran or tangible evidence of shipping resuming through Hormuz, with Tuesday or Wednesday the window Bessent flagged for a potential deal.
Source: actionforex.com
