Crude to the Rescue

July 28, 2026

Elias Haddad

Cheaper oil softens blow to risk appetite from chip rout. USD firmer.

KRW outperforms across the board while Kospi trails the pack.

RBA rate hike bets ease after Bullock’s speech. AUD underperforms.

Risk sentiment is mixed. The decline in crude oil prices is cushioning the blow to risk appetite from the renewed selloff in semiconductor stocks. The Kospi index led the plunge, falling by nearly -11%, its steepest decline in five months. Investors are increasingly questioning the sustainability of the ongoing AI capital expenditure boom as the rise in AI adoption rates seems to be slowing.

Moreover, circular financing arrangements - when technology companies invest in AI companies which in turn purchase those technology companies’ products – could amplify financial fragilities and deepen the stock market correction. Last week, Nvidia Corp announced it was working on AI deals worth more than $750 billion with SK Group and OpenAI.

Nevertheless, the VIX index - a measure of US equity market volatility, and a proxy for global risk aversion - is near its long-term average and not indicative of outright market stress.

USD is firmer against most currencies, with KRW the exception. The outperformance in KRW mirrors the slump in the Kospi. The logic is that as Korean equities underperform and their weight in global portfolio declines, the need for foreign investors to trim positions and repatriate funds diminishes, reducing KRW outflows.

In our view, the goldilocks-like US macro backdrop (resilient growth, stable labor market, and peaking inflation pressures) remains USD supportive.

July Conference Board Consumer Confidence index is today’s data highlight (3:00pm London, 10:00am New York). Pay attention to the job subindexes which are currently consistent with a labor market in balance. ADP employment change for the week ending July 11 will also be worth monitoring (1:15pm London, 8:15am New York).

AUSTRALIA

RBA Governor Michele Bullock stuck to the bank’s hawkish bias but also hinted at patience. Bullock said the full effects of increases in the cash rate from earlier in the year will take time to materialize, adding “there’s evidence that domestic demand and labour market conditions have been easing as required to bring the economy back towards balance.” Still, Bullock reiterated that the bank is prepared to “increasing the cash rate further if needed.”

RBA cash rate futures trimmed August rate hike bets from about 30% to 20% after Bullock’s remarks. AUD dipped against USD and most other major currencies. AUD/USD is edging down towards key support at 0.6904, the 200-day moving average.

In our view, the risk is skewed towards an extended pause in the RBA tightening cycle which is a headwind for AUD: (i) RBA projects real GDP growth to be below potential over the next two years; (ii) RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate.

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