Loonie weakened as oil prices pulled back, with markets turning cautious while awaiting clarity on ceasefire negotiations between the US and Iran. Brent crude easing to the 100 level has triggered a de-risking move in energy-linked assets, removing a key pillar of support for the Canadian Dollar.
The move reflects more than just oil price dynamics. With Canada heavily reliant on energy exports, shifts in crude prices quickly feed into currency performance. At the same time, the domestic economy remains too fragile to absorb tighter policy, limiting the Bank of Canada’s ability to follow more hawkish peers.
Beyond oil, markets are broadly in a “wait-and-hope” mode. Negotiations around a US-led 15-point ceasefire plan appear to be ongoing, while Iran has signaled that non-hostile vessels may obtain safe passage through the Strait of Hormuz under coordination. These developments offer tentative signs of de-escalation, but fall short of a confirmed resolution.
That lack of clarity is keeping overall price action muted. While sentiment has improved marginally, it has not translated into decisive risk-on positioning. Instead, markets are holding steady, with investors reluctant to commit ahead of clearer geopolitical signals.
In currency markets, divergence is becoming more pronounced. Sterling firmed modestly following the UK’s February CPI release, while Aussie and Kiwi remain under pressure, reflecting their sensitivity to global growth risks.
The UK inflation data itself offered a slightly hawkish tilt beneath the surface. While headline CPI matched expectations, core inflation edged higher, driven by services and clothing prices. This suggests that underlying price pressures remain persistent.
More importantly, the data reflect pre-escalation conditions. Since then, energy prices have surged following disruptions linked to the Strait of Hormuz. Analysts are already projecting inflation to rise toward 3.5%–4.0% by autumn as higher fuel costs feed through.
This shift is reinforcing expectations that the Bank of England may be forced back into a tightening stance. Today’s CPI release adds weight to that view, suggesting that the disinflation path may be interrupted.
Comments from BoE Chief Economist Huw Pill yesterday further support this narrative. His remark that uncertainty “cannot be an excuse for inaction” signals that the hawkish camp within the MPC remains prepared to act if inflation risks become more persistent.
In contrast, Canada’s policy outlook appears constrained. With growth already soft and oil prices retreating, the Bank of Canada is unlikely to tighten, widening the divergence with central banks such as the BoE and ECB.
For the day so far, Dollar is the strongest performer, followed by Sterling and Euro. Aussie leads losses, followed by Kiwi and Loonie, while Yen and Swiss Franc are holding in the middle.
In Europe, at the time of writing, FTSE is up 0.92%. DAX is up 1.22%. CAC is up 1.10%. UK 10-year yield is down -0.153 at 4.799. Germany 10-year yield is down -0.007 at 2.967. Earlier in Asia, Nikkei rose 2.87%. Hong Kong HSI rose 1.09%. China Shanghai SSE rose 1.30%. Singapore Strait Times rose 0.87%. Japan 10-year JGB yield fell -0.016 to 2.255.
UK Inflation Unchanged at 3.0% as Services Keep Price Pressure Elevated
UK CPI held at 3.0% while core inflation rose to 3.2%, with rising energy prices now threatening to derail the disinflation trend. Read More.
German Business Sentiment Drops as Iran War Hits Confidence
Germany’s Ifo index weakened as firms turned more pessimistic, reflecting rising geopolitical uncertainty and fading recovery prospects. Read More.
Australia Inflation Eases Pre-War, RBA Still Faces Sticky Core Pressures
Pre-war data show modest easing in Australia inflation, though underlying pressures remain firm and could rise again as energy costs increase. Read more.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.3724; (P) 1.3756; (R1) 1.3796; More…
Intraday bias in USD/CAD stays on the upside at this point. Rebound from 1.3480 is seen as correcting the whole down trend from 1.4791. Further rise should be seen to 1.3927 resistance, and probably further to 38.2% retracement of 1.4791 to 1.3480 at 3981. For now, risk will stay on the upside as long as 1.3669 support holds, in case of retreat.
In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen, as the pattern extends, to 61.8% retracement of 1.2005 to 1.4791 at 1.3069. However, break of 1.3927 resistance will argue that the correction has completed with three waves down to 1.3480 already.
