The core event across all four articles is the heightened volatility in major currency pairs driven by surging oil prices, escalating geopolitical tensions in the Middle East—particularly the Iran conflict and disruptions at the Strait of Hormuz—and shifting expectations for central bank policy responses in New Zealand, Australia, Japan, and Canada [1][2][3][4].
For the New Zealand Dollar, NZD/USD remains below 0.5950, trading around 0.5930, after giving up daily gains. The NZD strengthened earlier on rising expectations of a Reserve Bank of New Zealand (RBNZ) rate hike in 2026, attributed to persistent domestic inflation concerns fueled by the recent surge in oil prices. Market analysts expect New Zealand inflation to remain more persistent than the RBNZ anticipates, reinforcing rate hike bets. This marks a shift from last month, when the RBNZ signaled the official cash rate would likely stay around 2.25% throughout the year [1].
The Australian Dollar advanced for the fourth consecutive session, with AUD/USD trading around 0.7130, supported by growing expectations of a Reserve Bank of Australia (RBA) rate hike next week. RBA Deputy Governor Andrew Hauser highlighted that oil price volatility and Middle East tensions pose significant challenges for central banks, with the policy response depending on the magnitude and persistence of the price shock. Australia's headline inflation stands at 3.8% and may exceed 4% as petrol prices rise, while core inflation remains at 3.4%, above the RBA’s 2–3% target band [4].
For the Canadian Dollar, USD/CAD remains subdued around 1.3570, down less than 0.10% for the day. The International Energy Agency (IEA) has proposed the largest release of oil reserves in its history to counteract soaring crude prices caused by the US-Israel war with Iran. This has exerted downward pressure on oil prices, undermining the commodity-linked Loonie. However, US Dollar selling and a positive equity market tone are weighing on the safe-haven USD. Market participants are awaiting the US Consumer Price Index (CPI) release, which could influence expectations for the Federal Reserve's rate-cut path and drive USD demand [2].
The Japanese Yen weakened below 158.50, with USD/JPY trading around 158.30, as uncertainty over Bank of Japan (BoJ) policy persists. Speculation increased that Japanese Prime Minister Sanae Takaich would pressure the BoJ to go slow on rate hikes, following reports of her reservations about additional tightening. BoJ Governor Kazuo Ueda signaled a likely prolonged hold on interest rates due to the potential economic impact of the Middle East conflict. The BoJ is expected to maintain its policy rate at the upcoming meeting. The US February CPI is in focus, with estimates for a 2.4% YoY increase in headline CPI and 2.5% in core CPI; softer inflation could undermine the USD in the near term [3].
Across all markets, the intensifying Middle East conflict and the potential closure of the Strait of Hormuz are driving risk aversion, impacting oil prices and inflation expectations globally. US President Donald Trump stated late Monday that the conflict could end soon, but US officials reported on Tuesday that military operations were intensifying with limited prospects for diplomatic negotiations [1][4].
CONCLUSION
Currency markets are experiencing heightened volatility as surging oil prices and escalating Middle East tensions drive inflation concerns and shift central bank policy expectations. The New Zealand and Australian Dollars are supported by rising rate hike bets, while the Canadian Dollar is pressured by oil price swings and the Japanese Yen weakens on BoJ policy uncertainty. The upcoming US CPI release is a key focus for further market direction.