Global FX divergence under energy supply shocks: delayed USD depreciation, with BRL, CAD, AUD, and EGP relatively better supported
AI summary card
Global FX divergence under energy supply shocks: delayed USD depreciation, with BRL, CAD, AUD, and EGP relatively better supported
Goldman Sachs believes that the Middle East conflict and disruptions to energy flows will continue to affect FX through terms of trade, energy prices, and real rates, but supply resilience may be stronger than expected, making the risk-reward in USD and cyclical currencies more currency-specific.
- The timing of broad USD depreciation has been pushed back, but if global supply resilience proves stronger than GDP forecasts imply, the market may be overly optimistic on the USD and overly cautious in pricing cyclical currencies such as AUD.
- BRL has been one of the best performers year to date, supported by improved Brazilian terms of trade, a recovery in risk assets, and high carry; Goldman Sachs lowered its 3-, 6-, and 12-month USD/BRL forecasts to 4.90, 5.00, and 5.00.
- GBP drivers have shifted from UK domestic macro to the global energy terms-of-trade shock; versus beneficiary currencies such as USD or AUD, sterling downside exposure is more valuable.
- CAD remains relatively resilient under the energy shock, with oil-price sensitivity and a positive correlation with the broad USD supporting it in the short term, though domestic data and USMCA uncertainty still constrain it in the medium term.
- Goldman Sachs recommends re-entering a long EGP position, i.e. short USD/EGP, with an initial total return target of 6% and a stop-loss of -3%, citing high carry, reserve buffers, and a GSDEER valuation discount.
Report interpretation
Overview
This is a Goldman Sachs Global FX Trader report focused on how energy supply disruptions and the Middle East conflict are changing global current accounts, terms of trade, inflation pricing, real rates, and FX returns. The report covers USD, BRL, GBP, CAD, ILS, INR, AUD, NZD, IDR, PHP, THB, EGP, as well as the FX-rates relationship, and provides 3-month, 6-month, and 12-month forecasts for major currency pairs.
Core views
The report’s main message is that “the supply shock is still here, but its impact is more subtle than initially expected.” Goldman Sachs believes that elevated energy prices and supply shortages will continue to affect terms of trade and growth differentials, so European currencies and energy importers still underestimate the risk of more severe energy constraints; at the same time, recent resilience in high-frequency activity and growth forecasts suggests global supply may be more elastic than forecast. At the currency level, BRL, CAD, AUD, and EGP are supported by terms of trade, oil prices, carry, or valuation buffers, while GBP, INR, NZD, and some Southeast Asian currencies are more vulnerable to energy imports, risk sentiment, or external financing pressure.
Analysis framework
The report uses a cross-asset macro framework, combining energy prices, terms of trade, equity market risk sentiment, nominal and real rate differentials, central bank policy, valuation models, and positioning technicals to assess FX. The analysis compares not only spot and forwards, but also focuses on 3-month, 6-month, and 12-month forecasts, currency carry, energy price scenarios, central bank reaction functions, and the performance of specific currency pairs under two market states: oil prices and equities.
Methodology notes
Terms-of-trade shock
Uses changes in terms of trade to measure the impact of energy shocks on current accounts and FX returns across currencies; the report notes that CAD is sensitive to oil-price shocks, while BRL and COP are supported by both improved terms of trade and high carry.
Equilibrium exchange rate valuation
Used to assess the degree to which a currency is overvalued or undervalued versus the USD; the report notes that ILS is more than 14% overvalued against the USD, while EGP became the most undervalued currency in Frontier coverage after the post-war selloff.
Behavioral equilibrium exchange rate model
Used to decompose the explanatory power of cyclical factors and relative rate differentials for currencies; the report notes that NZD has underperformed relative to the GSBEER cyclical factor since the energy shock.
FX and rate-differential relationship
The report argues that during the energy shock, nominal rate differentials explain a smaller share of FX moves, while the relationship with real rates is more stable; in a supply-driven inflation environment, real rate differentials matter more than nominal ones.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- USDSupply shocks, growth differentials, and safe-haven demand jointly shape the USD path
- Strengths
- Growth downgrades in the US and some relatively energy-insulated economies are smaller, delaying USD depreciation.
- Weaknesses
- If global supply elasticity is stronger than forecast, the market may be overly optimistic on the USD.
- Comparison
- Relative to European currencies, it still benefits from growth and current-account differentials under the energy shock.
- Risks
- Easing energy shocks, continued improvement in risk sentiment, or rebounds in cyclical currencies could weigh on the USD.
- BRLSupported by terms of trade, high carry, and a recovery in risk assets
- Strengths
- Strong year-to-date performance, with improved terms of trade and high carry enhancing total-return appeal.
- Weaknesses
- As the presidential election approaches, local political risk and volatility may erode carry-to-vol.
- Comparison
- Like COP, it is a beneficiary of high carry and improved terms of trade; the report suggests using CLP funding to build a more risk-neutral long BRL position.
- Risks
- The biggest near-term risk is a reversal in the recovery of global risk assets.
- GBPDriven less by UK domestic macro and more by global energy terms-of-trade shocks
- Strengths
- Recent improvement in UK data has supported sterling, partly reversing last year’s relative data weakness versus the euro area.
- Weaknesses
- Its energy-importer profile, GSDEER overvaluation, difficulty realizing BoE hiking premium, and fiscal-political risks all create pressure.
- Comparison
- Relative to beneficiary currencies such as USD or AUD, sterling’s downside risk is clearer.
- Risks
- Political risk premium ahead of the May 7 local elections and persistently elevated energy prices.
- CADA resilient G10 currency supported by oil prices and terms of trade
- Strengths
- Sensitive to oil-price shocks and likely to continue outperforming under energy shocks.
- Weaknesses
- Domestic data are soft, and USMCA uncertainty weighs in the medium term.
- Comparison
- More supported by oil prices than other G10 currencies, though its USD beta also creates two-way risk.
- Risks
- If risk sentiment continues to recover and commodity markets ease, CAD may underperform.
- ILSRecently driven more by US tech-equity beta
- Strengths
- The NASDAQ rebound has driven shekel appreciation, pushing USD/ILS below 3.00.
- Weaknesses
- GSDEER indicates ILS is more than 14% overvalued versus the USD, which may limit further appreciation.
- Comparison
- In the short term, global tech-equity beta is more dominant than geopolitical risk.
- Risks
- Israel-specific risk premium, domestic political uncertainty, or central-bank reaction to currency strength.
- INREnergy import shocks and insufficient capital inflows weigh on the rupee
- Strengths
- Slightly undervalued on a real trade-weighted basis, with economic data more resilient than demand-destruction expectations.
- Weaknesses
- Elevated energy prices, lower remittances, limited capital inflows, and the need to rebuild reserves constrain appreciation.
- Comparison
- Relative to equity earnings prospects in North Asia and Latin America, India is less attractive for capital inflows.
- Risks
- Prolonged energy blockades, rising oil prices, and policy giving greater priority to reserve rebuilding.
- AUD/NZDAUD is more resilient than NZD under the energy shock
- Strengths
- AUD outperforms when equities rally and oil prices fall, while in risk-off conditions it is also protected by offsetting terms-of-trade support.
- Weaknesses
- AUD/NZD may retrace in the medium term due to misaligned rate differentials; NZD’s correlation with the first principal component of global FX has risen.
- Comparison
- NZD has been weak in both recent regimes of rising oil/falling equities and falling oil/rising equities.
- Risks
- If the RBNZ path, rate differentials, or positioning reverse quickly, AUD/NZD may mean-revert.
- IDR/PHP/THBSoutheast Asian FX is dragged down by oil prices and terms of trade
- Strengths
- Philippine index inclusion may bring portfolio inflows in 2027; Indonesian policymakers emphasize maintaining IDR stability.
- Weaknesses
- Rising oil prices, energy imports, and tourism-related shocks weigh on regional currencies.
- Comparison
- IDR, PHP, and THB were the main laggards in April, while MYR continued to outperform relatively.
- Risks
- Brent remaining above USD100/bbl, rising inflation, central banks being forced to turn more hawkish, or mounting fiscal pressure.
- EGPHigh carry, reserve buffers, and valuation discount support re-entering longs
- Strengths
- 12-month nominal carry exceeds 14%, and valuation buffers deepened after the post-war selloff.
- Weaknesses
- It remains exposed to geopolitical shocks, portfolio outflows, and commodity-price scenarios.
- Comparison
- One of the cheapest currencies in Frontier coverage, with cleaner technicals due to reduced foreign holdings.
- Risks
- Renewed geopolitical escalation, reserve depletion beyond expectations, or deterioration in global risk appetite.
Key data
- USD/BRL forecast4.90 / 5.00 / 5.00Goldman Sachs lowered its 3-month, 6-month, and 12-month USD/BRL forecasts from 5.20, 5.30, and 5.30.
- USD/ILS forecast3.00 / 3.05 / 3.10Goldman Sachs lowered its 3-month, 6-month, and 12-month USD/ILS forecasts from 3.15, 3.20, and 3.25.
- EGP trade recommendationShort USD/EGP, target total return 6%, stop-loss -3%The report argues that EGP offers more than 14% 12-month nominal carry, along with reserve and valuation buffers.
- Brent oil backdropAbove USD100/bblOne of the direct backdrops weighing on Southeast Asian currencies.
- BSP policyHiked 25bps to 4.0%The Bangko Sentral ng Pilipinas raised its 2026 average CPI forecast to 6.3%, and Goldman Sachs expects another hike in June.
- Potential inflows from Philippine index inclusionUSD 5-6bnThe Philippines is expected to be included in the JPM GBI-EM Global Diversified in January 2027, with an estimated weight of 1.8%.
- EUR/USD forecast1.14 / 1.18 / 1.20The table provides 3-month, 6-month, and 12-month forecasts, with current spot around 1.17.
- AUD/USD forecast0.72 / 0.73 / 0.74The table provides 3-month, 6-month, and 12-month forecasts, and the report argues that AUD is more resilient than NZD in the near term.
Impact & implications
The investment implication is that the FX market should not focus solely on central-bank nominal rate differentials, but should incorporate energy terms of trade, real rates, risk sentiment, and countries’ external balances into core pricing. Energy exporters or currencies benefiting from terms of trade may continue to outperform, while energy importers and currencies facing greater external financing pressure are more vulnerable; if supply-chain shocks continue to undershoot expectations, the USD’s safe-haven and growth advantages may be repriced, increasing upside risk for cyclical currencies.
Risks
- Disruptions to energy flows last longer than expected, causing commodity prices to continue rising and enlarging current-account shocks.
- Global supply elasticity proves stronger than model assumptions, potentially invalidating bullish USD and bearish cyclical-currency views.
- A reversal in the recovery of risk assets would hurt high-beta or high-carry trades such as BRL and EGP.
- If European PMI and production-shortage signals spread, European currencies may come under pressure again.
- Central-bank policy responses, inflation pass-through, and changes in real rates may alter the FX-rate differential relationship.
- Geopolitics, elections, fiscal policy, and regulatory changes may shift single-currency risk from global factors to local factors.
What to watch
- Whether energy transport flows through the Strait of Hormuz and the Middle East recover.
- Whether Brent remains above USD100/bbl, and the second-order effects of energy prices on inflation and terms of trade.
- Whether European PMI, production shortages, and high-frequency activity trackers show supply pressures spreading.
- The impact of G10 central-bank meetings on real rates, nominal differentials, and short-term FX reactions.
- Risk premium, volatility, and BRL carry-to-vol changes ahead of Brazil’s October presidential election.
- US tech-stock performance and its beta transmission to ILS.
- India’s balance of payments, remittances, capital inflows, and reserve rebuilding path.
- How the central banks and fiscal policies of the Philippines, Indonesia, and Thailand respond to oil-price shocks and currency depreciation.