Gold fell while the US struck Iran, and oil jumped above $83

US airstrikes on Iran sent oil surging and the dollar higher. Gold, the classic safe haven, fell toward $4,000 instead of rallying, and that is the move worth understanding today.

The strike and the commodity reaction

• The United States launched airstrikes to "swiftly punish" Iran for the deaths of US troops, with President Trump saying the US is hitting Iran "very hard".
• WTI surged above $83.00 as the conflict escalated. Oil prices rose while stock futures dipped.
• Gold fell toward $4,000, which is the counterintuitive move of the day. Instead of a flight to safety, headlines tie the hostilities to higher inflation expectations and firmer Fed rate hike bets, and higher rate expectations weigh on an asset that pays no yield. We took this exact pattern apart three days ago in why the safe havens broke this week.
• One waterway explains why a regional conflict reprices oil and currencies at the same time: the Strait of Hormuz.

Currencies and central banks

• The dollar gained on US-Iran tensions and inflation fears, with euro bulls staying on the sidelines.
• The Australian dollar softened below 0.7000 as the conflict escalated, a textbook risk-off reaction.
• The British pound held steady near 1.3450 through the escalation. Separately, Goldman Sachs recommended shorting GBP/USD on 18 July, citing concerns over the rally.
• The PBoC held its Loan Prime Rates steady in July and set the USD/CNY reference rate at 6.7948, against 6.7934 previously.
• New Zealand posted a June trade surplus of NZ$23 million, though the kiwi remained subdued following the PBoC decision. On our intraday strength gauge it still ranks as today's strongest major, with the yen the weakest.
• Our overall market sentiment (FSI) is neutral at 58, with the MRS at 59. The CTS is high at 80. Fear has a price, and the geopolitical risk premium is what the market is charging for it today.

Key events today

• CAD CPI m/m is scheduled, with a forecast of -0.2% after a previous 1.0%. With crude above $83, the loonie is the pair to watch: petrocurrencies explains why.
• Traders await New Zealand's CPI q/q, forecast at 1.5% following a prior 0.9%.
• Canadian Median CPI y/y and Trimmed CPI y/y are also on tap, both forecast to match their previous levels of 2.1% and 2.0% respectively.