A new wave of US military strikes against Iran over the weekend has sparked significant volatility across global financial markets, with the US Dollar (USD) strengthening against major currencies such as the Canadian Dollar (CAD), Japanese Yen (JPY), and New Zealand Dollar (NZD) during Asian trading hours on Monday [1][3][4]. The USD/CAD pair rose to near 1.4165, breaking a four-day losing streak, as escalating tensions and Iran's announcement to close the Strait of Hormuz fueled risk-off sentiment and boosted the Greenback's safe-haven appeal [1]. Similarly, USD/JPY climbed above 162.00, supported by the wide US-Japan rate differential and concerns about Japan's economy, which relies on the Strait of Hormuz for over 90% of its crude oil imports [3]. The NZD/USD pair depreciated to around 0.5750, despite positive local economic data, as the USD gained sharply amid heightened geopolitical risks [4].
US Central Command (CENTCOM) launched additional strikes on Sunday evening, targeting Iran's capability to disrupt civilian vessels in the critical waterway. Over three nights, US forces reportedly hit more than 300 Iranian targets, including 140 on Saturday alone [2][4]. Iran retaliated with drone and missile attacks on US allies across the Middle East, including Kuwait, Jordan, Qatar, and Bahrain [1]. There are conflicting reports regarding the status of the Strait of Hormuz, with Washington and Tehran issuing contradictory statements about whether it remains open to maritime traffic [2][4].
The surge in hostilities has reversed some of last week's market losses, which had been driven by an interim US-Iran peace agreement and expectations of increased Middle Eastern energy supplies [2]. The escalation has dampened hopes for continued diplomacy, with Tehran demanding Washington honor previous commitments on shipping transit and normalization of Iranian oil exports before further negotiations [2]. Rising oil prices have sparked inflation fears and increased bets on higher interest rates, impacting commodities such as silver, which fell to near $59.00 per troy ounce [2].
Market participants are closely watching upcoming US economic data, particularly the June Consumer Price Index (CPI) inflation report due Tuesday, which is expected to show a 0.1% MoM decline in headline CPI and a 0.3% rise in core CPI [2]. The Federal Reserve is anticipated to hold its benchmark rate in a target range of 3.50% to 3.75% in July, with speculation of at least one interest rate hike by the Fed in 2026 [3]. Fed Chair Kevin Warsh's first official congressional testimony is also expected to provide further policy clues [2][3]. Meanwhile, the Bank of Canada is expected to keep its overnight rate at 2.25% at its July policy meeting, and the Bank of Japan has normalized its policy rate to 1.0%, leaving a substantial rate gap with the US [1][3].
Despite positive economic data from Canada and New Zealand—Canada added 18.2K jobs in June, beating expectations, and New Zealand's services and composite indices returned to expansionary territory—their currencies failed to find support as global risk aversion dominated trading [1][4]. Traders remain alert to potential intervention by Japanese authorities to support the Yen, which has stayed below a four-decade high [3].
CONCLUSION
The US Dollar's safe-haven status has been reinforced by escalating tensions between the US and Iran, leading to broad declines in risk-sensitive currencies and commodities. Upcoming US inflation data and Federal Reserve policy signals are expected to further influence market direction. Despite positive local economic data in Canada and New Zealand, geopolitical risks and inflation concerns are currently overshadowing fundamentals, resulting in high market volatility.