STIR: $-Bloc Pricing Firmer Again Over Past Week On ME Conflict & Oil Price
Over the past week, interest-rate expectations across the $-bloc through December 2026 have firmed further in response to the Middle East conflict and its impact on oil prices, with moves led by the Canada (+28bps), followed by the US (+19bps), New Zealand (+14bps) and Australia (+11bps). This followed a 9-19bp firming the week before.
- Oil prices remained highly elevated and volatile during the US trading day on Thursday as the market balanced a historic supply disruption against a massive emergency reserve release.
- Brent crude climbed above $100/bbl (peaking near $101) after Iran's new Supreme Leader issued his first public statement vowing to keep the Strait of Hormuz closed. This de facto closure has halted roughly 20 million barrels per day, effectively removing one-fifth of global supply from the market.
- In a direct attempt to cool prices, the International Energy Agency (IEA) announced its largest-ever coordinated release of 400 million barrels from strategic reserves. While this provided a temporary soft ceiling, prices rose anyway, signalling that the market views the reserve release as likely insufficient.
- Prices were further bolstered by reports of Iranian-led attacks on oil terminals and tankers in Iraqi waters. Iraq's production reportedly collapsed by 70% as export routes became unusable, forcing authorities to shutter major terminals overnight for safety.
- The next major regional policy events are the RBA meeting on 17 March and the FOMC and BOC meetings on the 18 March. 71% probability of a 25bp tightening by the RBA is priced, while the US and Canadian markets attach a 1% and 4% probability of a 25bp easing.
- Looking ahead to December 2026, current market-implied policy rates expected are as follows: US (FOMC): 3.44%, -18bps; Canada (BOC): 2.67%, +42bps; Australia (RBA): 4.33%, +48bps; and New Zealand (RBNZ): 2.84%, +59bps.
Figure 1: $-Bloc STIR (%)
Source: Bloomberg Finance LP / MNI
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USD: BBDXY-Back Testing 1175-1180 Support, As Headwinds For The USD Grow
The BBDXY range overnight was 1180.25 - 1183.97, Asia is currently trading around 1182. The USD has fallen below most short-term supports and is looking to the lows seen in January now. It does not take a lot for the sellers to come back to market as nobody wants to miss out on this trade. The break lower in US yields is just adding to the USD headwinds and the market will be bracing for more bad news from the employment data tonight. On the day, the first resistance is toward the 1185-1187 area and then 1195 where I suspect we could see buyers return. A sustained break below 1175-1180 could potentially signal the start of another leg lower targeting 1150 first and then potentially 1115.
- Daily Chartbook X: “Dollar shorts chase recent weakness and are now back to 2025 short levels”. - @CameronDawson @NewEdgeWealth. See Fig.1 below.
- Oguz Erkan on X: Ray Dalio: “Debt problem is followed by devaluation of the currency.” Looks like this is exactly how the US will handle its debt problem. Kevin Warsh’s Fed will peg short-term rates to artificially low levels, and buy treasuries to keep them down, inflating the debt away.” This is why central banks are dumping US debt and buying gold instead.” https://x.com/oguzerkan/status/2020827168436080719?s=20
- The BBDXY Average True Range for the last 10 Trading days: 564 Points
Fig 1: USD Shorts Increasing
Source: MNI - Market News/Bloomberg Finance L.P/@dailychartbook
JPY: USD/JPY Eyeing 154.00 Downside Test
USD/JPY is tracking towards 154.00, just under overnight lows (154.06). Earlier highs for the pair were at 154.52. USD/JPY bounces being faded has been a consistent theme since Monday, post the election result. Broader USD sentiment is a touch negative so far today, although yen gains of +0.20% are the standout within the G10 FX space. Note in terms of downside support: 152.10 Low Jan 27 and the bear trigger.
AUD: EUR/AUD - Stalls Toward 1.6800, Break Below 1.7000 Looks Significant
The overnight range was 1.6806 - 1.6849, Asia is currently trading around 1.6805. The pair is consolidating toward 1.6800 after its recent break back below 1.7000. This looks to potentially be a significant break signalling a deeper pullback thus ensuring any decent rallies should now find eager sellers. On the day, the first sell-zone is back toward the 1.6900-1.6930 area and then 1.7000-1.7050. The AUD bulls would be cheering this move and adding to AUD longs that have been outperforming across the board. This move potentially targets the 1.6000-1.6400 area.
- The EUR/AUD Average True Range(ATR) for the last 10 Trading days: 125 Points
Fig 1: EUR/AUD spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
