Escalating tensions in the Middle East, specifically the US-Israeli conflict with Iran, have rattled global markets and pushed crude oil prices above $100 per barrel, raising fears of supply disruptions due to retaliatory Iranian attacks on ships, infrastructure, and ports vital for oil transit [3]. This surge in oil prices has had varied impacts on major currencies: the Canadian Dollar (CAD) has gained ground against the US Dollar (USD), with the USD/CAD pair posting modest losses around 1.3685 during Asian trading hours on Tuesday [3]. However, disappointing Canadian employment data, including a net loss of 83,900 jobs in February and a rise in the unemployment rate to 6.7%, could limit the CAD's strength [3].
The New Zealand Dollar (NZD) appears vulnerable, with the NZD/USD pair trading just below mid-0.5800s and remaining under pressure while below the 200-day Simple Moving Average (SMA) [1]. The surge in crude oil prices is reviving inflationary concerns, which may prompt the US Federal Reserve (Fed) to delay interest rate cuts, supporting the USD and exerting downward pressure on the NZD/USD pair [1]. Additionally, the Iran war has strained US-China relations, with US President Donald Trump delaying a high-stakes visit to China by about a month, further undermining antipodean currencies like the Kiwi [1]. Efforts to reopen shipping traffic in the Strait of Hormuz have modestly improved global risk sentiment, potentially limiting further USD appreciation and NZD losses, but traders are largely waiting for the Fed's policy decision and New Zealand's quarterly GDP report later this week [1].
The Japanese Yen (JPY) has weakened as the USD strengthens, with the USD/JPY pair trading near 159.40 during Asian hours on Tuesday [2]. Japan’s Finance Minister Satsuki Katayama noted elevated market volatility and signaled readiness for intervention if necessary [2]. Bank of Japan (BoJ) Governor Kazuo Ueda stated that underlying inflation is gradually moving toward the 2% target, and the BoJ is expected to keep interest rates unchanged at 0.75% on Thursday, while maintaining the option for further tightening [2]. The USD's strength is attributed to fading expectations for near-term Fed rate cuts amid rising inflation concerns linked to the Middle East conflict [2].
Across all sources, the upcoming US Federal Reserve interest rate decision on Wednesday is highlighted as a pivotal event. Markets widely expect the Fed to keep its benchmark rate unchanged in the 3.50%-3.75% range, marking the second consecutive pause after the previous easing cycle [2][3]. Traders see no chance of a rate reduction at this meeting [3]. Fed Chair Jerome Powell’s post-decision remarks are anticipated, with any hawkish tone potentially supporting the USD further [3].
CONCLUSION
The Middle East conflict has driven oil prices sharply higher, impacting global currencies and fueling inflation concerns. The Canadian Dollar has benefited from rising oil, while the New Zealand Dollar and Japanese Yen remain pressured by USD strength and geopolitical uncertainty. All eyes are now on the US Federal Reserve's rate decision and Chair Powell's comments, which are expected to shape near-term currency market direction.