Summary:

• Trump announced a delay to planned military strikes on Iran following requests from Gulf allies, supporting risk sentiment and weighing on the USD and oil prices during the US Monday session
• Trump followed up with upbeat afternoon comments, saying there appears to be a good chance a nuclear deal with Iran can be reached, though repeated claims of having won the war have eroded his credibility with markets
• The USD recovered modest ground during the Asian session, with AUD, NZD, GBP and JPY all retreating; USD/JPY pushed toward 159 before stabilising
• Japan Q1 GDP grew an annualised 2.1%, beating the 1.7% forecast, though analysts warn the Iran war energy shock is set to slow growth sharply in Q2
• RBA May meeting minutes showed the board raised the cash rate to 4.35%, its third consecutive hike, while signalling the move gives it time to assess the conflict’s impact, flagging a possible pause in June; August remains live and event-dependent
• The PBOC set the yuan midpoint at its strongest level since 24 March 2023
• The Nikkei reversed early gains of more than 1% to fall 0.64% to 60,429.76 by the midday break, set for a fourth consecutive session of losses; the broader Topix rose 0.37% to 3,840.7
• The South Korean won fell 0.7% during the session
• India’s state-run refiners raised fuel prices for the second time in less than a week
• US Vice President JD Vance will deliver the White House press briefing on Wednesday at 1pm Eastern time

Monday’s US session was defined by a sharp pivot in geopolitical sentiment after President Donald Trump announced he was delaying planned military strikes against Iran following requests from Gulf allies, including Saudi Arabia, Qatar and the UAE, who argued that a diplomatic resolution was within reach. The news provided a meaningful boost to risk assets, weighed on the US dollar and pulled oil prices lower as markets repriced the immediate probability of a military escalation.

Trump reinforced the tone in afternoon remarks, saying there appeared to be a good chance a nuclear deal with Iran could be worked out. Markets received the comments with cautious optimism rather than conviction, however. Trump’s repeated assertions over recent months that the US had effectively won the conflict have worn thin with traders, and the credibility discount attached to his diplomatic signals has grown accordingly.

Into the Asian session, the USD clawed back modest ground. The Australian and New Zealand dollars retreated alongside sterling and the yen, with USD/JPY pushing toward the 159 level before finding some stability, remaining within range of the 160 threshold that Japanese authorities have identified as their line in the sand for intervention.

On the data front, Japan delivered a stronger-than-expected first quarter GDP print, with annualised growth of 2.1% beating the 1.7% consensus forecast. The result reflects an economy that was on solid footing before the Strait of Hormuz closure took effect, though analysts were quick to note that the energy shock’s full impact on Japanese growth will not become visible until second quarter data. The Nikkei failed to hold early gains inspired by the result, reversing to fall 0.64% to 60,429.76 by the midday break and heading for a fourth consecutive session of losses. Technology heavyweights tracked overnight weakness in US peers, though the broader Topix managed a 0.37% gain as investors rotated into economically sensitive names.

The Reserve Bank of Australia’s May meeting minutes confirmed the board raised the cash rate to 4.35% in a largely hawkish decision, with eight of nine members backing the move. Critically, the minutes signalled the hike was designed in part to create space for the board to assess the Iran conflict’s evolving impact on the Australian economy, a formulation widely read as leaving the door open to a pause in June. August, however, remains a live meeting, with the outcome dependent on how the energy shock and inflation data develop in the intervening weeks.

Elsewhere, the PBOC set the yuan midpoint at its firmest level since 24 March 2023, a signal of policy intent that drew attention given the broader USD recovery. India’s state-run refiners raised fuel prices for the second time in less than a week, underscoring how Middle East supply disruption continues to feed through into Asian domestic energy markets. US Vice President JD Vance is scheduled to deliver the White House press briefing on Wednesday at 1pm Eastern time, an event that will be watched for any further signals on the Iran diplomatic track.