USD

The greenback slipped modestly on Monday as markets welcomed tentative reports of a naval coalition to secure oil shipments through the Strait of Hormuz, but the move was shallow, and the DXY remains close to multi‑month highs. Brent crude still sits above $100 a barrel, and the outbreak of hostilities in the Middle East has kept safe‑haven demand elevated. That should remain the case today, with little on the docket domestically. Overnight, the RBA became the first major central bank to tighten since the conflict began, raising its cash rate to 4.10% and underscoring the inflationary implications of the war. That provides an appetiser for tomorrow evening’s FOMC decision, where, unlike their Australian counterparts, we expect the Fed to leave rates unchanged. Still, it is likely that we see inflation projections marked higher, with the Committee stressing a readiness to respond if the energy shock proves persistent. But before then, our expectation is for the dollar to trade within recent ranges as markets await the Fed and continue to watch the geopolitical news flow.

EUR

After dropping into the low 1.14s last week, the euro managed a modest rebound on Monday, trading back toward 1.15 as risk sentiment improved. Even so, Europe’s dependence on imported energy keeps the single currency vulnerable; renewed attacks on Gulf shipping last week triggered another bout of euro selling, and absent any signs of a halt in the fighting, the direction of travel for oil prices will likely remain to the upside. Closer to home, today’s German ZEW survey is the only notable data point ahead of Thursday’s ECB meeting; we expect sentiment to have deteriorated further as higher oil prices bite. With the FOMC also looming, EURUSD is likely to remain range‑bound barring fresh headlines from the Middle East. Any unexpected escalation in hostilities would likely send the euro lower once more.

GBP

Sterling rose on Monday to trade near the 1.33 level against the dollar, partially reversing Friday’s fall after GDP data confirmed stagnation at the turn of the year. Cable has performed better than the euro since the conflict began, thanks to the UK’s slightly smaller reliance on imported energy, but we think that outperformance comes to an end this week, with labour market data and a BoE decision both to watch for on Thursday. The first of these should show softer employment growth and easing wage pressures, weighing against expectations for the BoE to hike rates later in the year. That is likely to be exacerbated by the MPC at lunchtime, despite Bank Rate being left unchanged at 3.75%. We suspect that policymakers will push back on swap pricing for rates to move higher, suggesting that cuts later in the year remain the most likely outcome, with downside implications for the pound.

CAD

The Canadian dollar’s early‑March resilience evaporated after Friday’s labour market shock, which showed 84k jobs lost and unemployment up to 6.7%. On Monday, the loonie hovered around 1.37 per US dollar, benefiting only modestly from the elevated price of crude. While Canada is a net energy exporter, domestic inflation has cooled markedly—headline CPI slowed to 1.8% in February, and core measures are running near 2.3%. This suggests the Bank of Canada can afford to look through the conflict‑driven spike in oil, especially with growth softening. Our long‑held view is that the BoC will hold its overnight rate at 2.25% tomorrow and signal a willingness to cut if domestic data continue to soften. Overnight, the RBA’s surprise hike highlights the risk that other central banks could respond to higher energy costs, but we think Governor Macklem will not follow suit. For today, we expect USDCAD to trade in the 1.36–1.38 range as investors await the Fed and BoC decisions and monitor developments in the Middle East.

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