Hormuz Strikes Fail to Rattle AI Rally, Dollar Slides

US Central Command confirmed strikes on Iranian-linked ports in the Strait of Hormuz last week. The S&P 500 and NASDAQ still hit fresh records. The dollar weakened across the board. The disconnect is the macro signal: markets are pricing AI-driven earnings growth as a shield against geopolitical shocks, and that assumption is driving currency flows.

The AI Bid Overrides Geopolitics

The rally was never about the economy. It was about AI. The S&P 500 followed the NASDAQ to new highs, and Asia’s technology-heavy benchmarks exploded. Japan’s Nikkei, South Korea’s KOSPI, and Taiwan’s TAIEX all surged as investors doubled down on semiconductor and AI infrastructure themes. Underneath the surface, traditional sectors lagged badly. The Dow struggled to break above 50,000, the FTSE drifted sideways, and Germany’s DAX weakened under fresh US tariff threats targeting European autos. This narrow leadership explains the market’s remarkable geopolitical indifference.

Traders spent Thursday and Friday positioning for a peace dividend after reports suggested Washington and Tehran were discussing a 30-day framework to reopen the Strait of Hormuz. Oil prices fell sharply. Then Iranian officials publicly rejected Washington’s timelines, and US Central Command confirmed the strikes. The market barely flinched. Investors increasingly appear convinced that AI-driven earnings growth and liquidity momentum can absorb almost any macro shock short of outright regional war. That conviction is the transmission mechanism: it suppresses volatility, fuels risk appetite, and starves the dollar of safe-haven bids.

Dollar’s Unusual Weakness: The Payrolls Paradox

Normally, a week featuring military clashes in Hormuz and a stronger-than-expected US payrolls report would fuel broad dollar strength. Instead, the greenback weakened sharply as traders rotated into risk-sensitive currencies and equities. The jobs report itself strengthened the bullish macro narrative. April payrolls came in far stronger than expected, confirming March’s strength was not a one-off. Wage growth remained tame, reinforcing the Goldilocks idea that the economy is resilient enough to avoid recession while inflation pressures stay manageable for the Federal Reserve to comfortably remain on hold.

That combination removed two major fears simultaneously: recession panic and hawkish Fed panic. Once those risks faded, investors returned to chasing the strongest momentum theme available–AI. Currency markets reflected the same dynamic. The New Zealand and Australian dollars led gains as Asia’s tech optimism intensified, while the dollar and yen underperformed. The Canadian dollar was hit especially hard. Collapsing oil prices and weak domestic labor data undermined the case for Bank of Canada tightening, a dynamic we flagged in our CAD rate path analysis.

AUD/CAD: The Hawkish RBA Meets a Soft Canadian Economy

The Australian dollar surged after the RBA delivered another hawkish rate hike to 4.35% and signaled in updated projections that the cash rate could eventually rise toward 4.7%. The guidance reinforced that Australia’s tightening cycle is not yet complete. In contrast, weak Canadian employment data sharply reduced expectations for any near-term Bank of Canada tightening, despite Governor Tiff Macklem’s warnings about inflation risks. Falling oil prices added further weight to the Canadian dollar.

AUD/CAD is on track to retest the key 0.9991 resistance, the 2021 high, with parity coming into view. A decisive break above parity would likely trigger another wave of upside acceleration toward the 100% projection of 0.9055 to 0.9749 from 0.9510 at 1.0204. More importantly, a sustained break above 0.9991 would confirm resumption of the broader uptrend from the 0.8058 low in 2020. In that scenario, the next medium-term target comes in at the 100% projection of 0.8058 to 0.9991 from 0.8440 at 1.0373. The near-term outlook stays bullish as long as 0.9721 support holds.

DXY and USD/CHF: The Bearish Dollar Framework

The Dollar Index gyrated lower but managed to stay above the 97.63 support. The broader technical outlook remains unchanged: the rebound from 95.55 likely completed at 100.64, just below the 38.2% retracement of the 110.17 to 95.55 decline at 101.13. Further downside is favored while 99.34 resistance caps recovery attempts. A decisive break below 97.63 would pave the way for another test of the 95.55 low. A firm break below 95.55 would confirm resumption of the broader downtrend from both the 101.17 (2025 high) and the 114.77 (2022 peak). This aligns with the DXY double top pattern we’ve been tracking.

USD/CHF’s decline from 0.8041 resumed last week. Initial bias stays to the downside. A firm break of the 61.8% projection of 0.8041 to 0.7774 from 0.7923 at 0.7758 will target the 100% projection at 0.7656. In the bigger picture, as long as the 55-week EMA (now at 0.8051) holds, the fall from 0.9200 is expected to continue as part of the larger downtrend. A firm break of 0.7603 will target the 100% projection of the 1.0146 (2022 high) to 0.8332 move from 0.9200 at 0.7382. Long-term, the outlook stays bearish as long as the 0.8756 support-turned-resistance holds, with a retest of the 0.7065 low from 2011 in sight.

Key levels for the week ahead:

What Would Break the AI Momentum?

The real question is whether markets have become too comfortable dismissing geopolitical danger. Heading into the weekend, investors are effectively betting that some form of US-Iran agreement will eventually emerge and prevent a full-blown Hormuz catastrophe. That bet is fragile. If escalation disrupts oil supply or if AI earnings fail to meet the priced-in growth, the dollar could snap back violently. For now, traders are willing to look past the risks and keep chasing the AI-driven rally, leaving the dollar under pressure. The first sign of a shift would be a NASDAQ close below 25,495 or a DXY recovery above 99.34. Until then, the path of least resistance for the dollar remains lower, and the AI trade continues to dictate the macro transmission.