US Dollar: AI-driven vulnerabilities surface – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong discuss how AI-linked investment has become a key pillar of US growth, equities, yields and Dollar strength. They warn that US-centric AI financing concerns can flip these supports, creating a risk-off environment with lower US Treasury yields and a softer USD, highlighting the Dollar’s growing exposure to an AI investment slowdown.

AI cycle risk for Dollar

"AI has supported US growth, equities, yields and the USD. But that strength cuts both ways. If the investment cycle cools, those same supports could reverse, leaving the dollar vulnerable even in a risk-off environment."

"The USD does not always benefit from risk aversion. When the shock originates in the US, as with the recent AI financing jitters, pressure on US assets can overwhelm the USD’s traditional safe-haven appeal. That matters because AI has become an important pillar of US growth resilience."

"For FX, this creates an unusual combination: risk-off, lower Treasury yields and a softer USD. This is not the typical global risk-off shock where investors simply rush into USD. If the source of stress is US-centric, Treasury safe-haven demand can push yields lower even as weaker US asset returns reduce the relative appeal of the USD."

"For now, we see the latest AI jitters as a bump rather than a break in the broader investment story. Concerns look overdone, but they are far from over. More importantly, the episode is a useful reminder for FX."

"The more the USD benefits from AI-driven US growth resilience on the way up, the more exposed it becomes if that support starts to fade."