US Dollar: AI boom brings two-way risk – OCBC
OCBC’s Sim Moh Siong and Christopher Wong argue that Artificial Intelligence (AI) remains a net tailwind for the US Dollar (USD), supporting US growth, yields and asset returns, but recent AI financing concerns have exposed two-way risk. They see the latest USD softness as temporary and still expect the Dollar to stay supported as long as US AI capex and growth remain durable.
AI tailwind but rising downside risks
"AI has been an important USD tailwind. Strong investment has supported US growth and equities, while adding to inflationary pressures, financing demand and Treasury yields. These forces have reinforced the relative appeal of US assets and the USD."
"The USD does not always benefit from risk aversion. When the shock originates in the US, as with recent AI financing concerns, weakness in US assets can overwhelm the USD’s traditional safe-haven appeal."
"There is also an FX hedging angle. If overseas investors become less confident that the USD will hedge declines in their US equity holdings, they may increase FX hedge ratios. That could reinforce USD selling when US equities come under pressure."
"The broader message is about two-way risk. The AI boom remains supportive of the USD, but recent price action shows that the relationship can reverse when the AI narrative wobbles. The USD can still benefit from AI, but it is no longer a one-way trade."
"For now, however, we expect the USD to remain well supported. We see the latest AI jitters as a bump, not a break in the investment cycle. As long as US AI capex remains durable and continues to support growth, yields and asset returns, AI should remain a net tailwind rather than a headwind for the USD."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)