The Australian Dollar (AUD) is positioned to perform well regardless of the geopolitical outcome. In an escalation, it benefits as a gas exporter. In a de-escalation, it rallies as a high-beta recovery play. The key is selecting the correct funding currency for the specific scenario.
A significant downside miss in US payrolls, which would normally weaken the dollar, had a muted market effect. This shows that strong cross-currents from geopolitical events and associated positioning unwinds can overshadow and neutralize traditional reactions to economic data.
During risk-off scenarios originating outside China, the central bank (PBOC) actively suppresses volatility. This policy causes the Chinese Yuan (CNY) to passively track the strong US dollar, making it the region's best-performing and most protected currency.
Due to its low volatility and dollar-proxy properties, the Canadian Dollar (CAD) can outperform other high-beta currencies during risk-off events like an energy shock, even if the USD/CAD exchange rate itself is flat or rising.
Despite a positive terms-of-trade shock from rising energy prices, the Norwegian Krone (NOK) has underperformed its fair value. This is because a crowded 'long NOK' trade led to deleveraging, demonstrating how existing market positioning can temporarily override fundamental drivers during market stress.