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Daily Pivots: (S1) 0.7819; (P) 0.7879; (R1) 0.7924; More….

Intraday bias in USD/CHF remains neutral and more consolidations could be seen below 0.7957. As noted before, rise from 0.7603 should be correcting whole decline from 0.9200. Above 0.7957 will target 38.2% retracement of 0.9200 to 0.7603 at 0.8213. This will remain the favored case as long as 0.7746 support holds.

In the bigger picture, a medium term bottom should be in place at 0.7603 on bullish convergence condition in D MACD. Rebound from there is seen as correcting the fall from 0.9200 only. However, decisive break of 55 W EMA (now at 0.8085) will suggest that it's probably correcting the larger scale down trend from 1.0146 (2022 high). On the other hand, rejection by the 55 W EMA will setup down trend resumption to 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382 at a later stage.

Daily Pivots: (S1) 1.3679; (P) 1.3717; (R1) 1.3765; More...

Immediate focus is now on 1.3751 resistance in USD/CAD. Decisive break there will suggest that stronger rebound is underway, probably as a correction to whole down trend from 1.4791. Further rally should be seen to 1.3927 resistance first. On the downside, below 1.3669 will bring retest of 1.3480/3524 support zone.

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.

Daily Pivots: (S1) 0.6927; (P) 0.6995; (R1) 0.7079; More...

Focus stays on 0.6943 support in AUD/USD after the volatility in the last 24 hours. Decisive break there should confirm rejection by 0.7206 key fibonacci resistance. That would set up deeper correction to the whole up trend from 0.5913, and target 38.2% retracement of 0.5913 to 0.7187 at 0.6700. Nevertheless, strong rebound from current levels would retain near term bullishness for breakout through 0.7187 at a later stage.

In the bigger picture, current development argues that rise from 0.5913 (2024 low) is reversing whole down trend from 0.8006 (2021 high). Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will pave the way back to 0.8006. This will remain the favored case as long as 0.6706 resistance turned support holds, even in case of deep pullback.

Dollar remained resilient as markets attempted to price in a tentative “peace pivot”, but with skepticism over its credibility limiting any sustained risk rally. Asian equities opened higher following the rebound in US markets overnight, but gains were modest, with major indexes recovering only about half of the previous day’s losses.

The initial optimism was driven by US President Donald Trump’s decision to postpone planned strikes on Iranian energy infrastructure for five days after what he described as “very good and productive” conversations. The announcement encouraged markets to unwind some of the extreme escalation risks that had been priced in following the earlier 48-hour ultimatum.

However, this narrative quickly ran into a credibility wall. Tehran dismissed the claims as “fake news” and “psychological warfare,” casting doubt on whether any meaningful diplomatic progress had been made. The conflicting signals have left markets hesitant to fully embrace the idea of de-escalation.

On the ground, developments have reinforced this caution. Reports of explosions over Jerusalem following Iranian missile fire highlight that hostilities remain active despite the rhetoric of talks. This disconnect between words and actions has kept investors wary of a sudden “snap-back” in tensions.

Oil markets reflect this skepticism. Brent crude rebounded back above 100, indicating that traders are not pricing in a lasting resolution. The persistence of elevated oil prices continues to anchor inflation expectations and limit the scope for a broader risk-on move. In equities, the muted rebound underscores the lack of conviction. The market is effectively caught between relief from delayed escalation and concern over unresolved risks.

Currency markets are showing a clearer expression of this dynamic. Dollar is the strongest performer for the day so fart. Yen is also firm on safe-haven demand, while Canadian Dollar benefits from oil strength. In contrast, Australian and New Zealand Dollars remain under pressure, reflecting their sensitivity to global growth and Asia-linked risks. Sterling is also softer, while Euro and Swiss Franc are trading in the middle as markets await clearer direction.

The next 96 hours are critical. The five-day pause is conditional on the “success of ongoing meetings,” leaving open the possibility that the original threat to strike Iranian infrastructure could return if progress stalls. This binary outcome is keeping volatility elevated.

Until there is concrete evidence of de-escalation—either through a joint statement or the reopening of the Strait of Hormuz—markets are likely to remain trapped in a headline-driven cycle. For now, the dominant theme is cautious positioning, with the Dollar’s resilience reflecting a market that is not yet ready to fully price in peace.

Elsewhere, Australia and the European Union formally signed a long-awaited free trade agreement after years of negotiations. The deal removes tariffs on Australian critical minerals, and includes a broader Security and Defense Partnership.

The agreement is being framed as a move toward supply chain diversification at a time of heightened geopolitical risk. By opening European markets further to Australian resources, it reduces reliance on China while strengthening support for the global energy transition, particularly in critical mineral supply chains.

In Asia, at the time of writing, Nikkei is up 0.43%. Hong Kong HSI is up 1.32%. China Shanghai SSE is up 0.64%. Singapore Strait Times is up 0.15%. Japan 10-year JGB yield is down -0.042 at 2.280. Overnight, DOW rose 1.38% S&P 500 rose 1.15%. NASDAQ rose 1.38%. 10-year yield fell -0.057 to 4.334.

Japan core CPI falls to 1.7% in February, as energy costs drag inflation lower

Japan CPI data point to easing inflation momentum driven by energy costs, though core-core inflation suggests underlying pressures remain. Read more.

Japan PMI composite falls to 52.5, war lifts costs and hits sentiment

Japan’s PMI data show growth cooling as input costs surge and business sentiment weakens. The Middle East conflict is lifting energy prices and disrupting supply chains, squeezing margins and raising uncertainty. Read more.

Australia PMI composite falls to 47, cost inflation hits 3-yr high on Middle East conflict

Australia’s PMI data signal a sharp shift into contraction as demand weakens and cost inflation surges to a three-year high. The combination highlights early stagflation risks as the Middle East shock begins to hit growth and prices. Read more.

RBNZ's Breman warns of inflation spike but cautions against overreaction

RBNZ Governor Anna Breman warns the Middle East conflict will lift inflation while weighing on growth, but stresses policy must avoid overreacting to temporary shocks. The focus remains on preventing short-term price spikes from becoming persistent inflation. Read more.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6927; (P) 0.6995; (R1) 0.7079; More...

Focus stays on 0.6943 support in AUD/USD after the volatility in the last 24 hours. Decisive break there should confirm rejection by 0.7206 key fibonacci resistance. That would set up deeper correction to the whole up trend from 0.5913, and target 38.2% retracement of 0.5913 to 0.7187 at 0.6700. Nevertheless, strong rebound from current levels would retain near term bullishness for breakout through 0.7187 at a later stage.

In the bigger picture, current development argues that rise from 0.5913 (2024 low) is reversing whole down trend from 0.8006 (2021 high). Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will pave the way back to 0.8006. This will remain the favored case as long as 0.6706 resistance turned support holds, even in case of deep pullback.

Japan’s inflation slowed further in February, with core CPI (ex-fresh food) easing from 2.0% yoy to 1.6% yoy, below expectations of 1.7% yoy. The drop pushed core inflation below the Bank of Japan’s 2% target for the first time in nearly four years, largely reflecting government measures to curb electricity costs.

The decline was driven primarily by falling energy prices. Energy costs dropped -9.1% yoy after -5.2% yoy in January, with gasoline prices plunging -14.9% yoy and electricity bills falling -8.0% yoy. This sharp easing in energy inflation offset still-elevated food prices, where costs excluding fresh items rose 5.7% yoy, albeit moderating from 6.2% yoy previously.

Broader inflation indicators also softened. Core-core CPI (ex-fresh food and energy) edged down from 2.6% yoy to 2.5% yoy. Headline CPI fell from 1.5% yoy to 1.3% yoy, marking the lowest level since March 2022 and a fourth consecutive monthly slowdown.

Japan’s private sector growth lost momentum in March as PMI data showed a broad-based slowdown across both manufacturing and services. PMI Manufacturing fell from 53.0 to 51.4, PMI Services eased from 53.8 to 52.8, and PMI Composite declined from 53.9 to 52.5, pointing to softer expansion after a strong start to the year.

The slowdown coincided with a sharp rise in input costs, with inflation accelerating to its fastest pace in nearly a year. According to S&P Global, higher energy prices and supply chain disruptions linked to the Middle East conflict were key drivers, alongside a weaker Yen and rising labor costs. While factory gate prices increased more quickly, service providers raised charges at a slower pace, resulting in a squeeze on margins.

S&P Global’s Annabel Fiddes noted that growth in output, new orders, and employment all moderated, with firms becoming more cautious amid heightened uncertainty. Confidence weakened, particularly in the services sector, as companies grappled with rising costs and unclear demand prospects. While manufacturers remain somewhat optimistic due to global demand in sectors such as AI and semiconductors, the overall outlook has become more uncertain as the war-driven shock feeds through the economy.

Full Japan PMI flash release here.

Australia’s private sector slipped into contraction in March as PMI data signaled a sharp deterioration in activity. PMI Manufacturing edged down from 51.0 to 50.1. But the real drag came from services, where PMI Services plunged from 52.8 to 46.6. As a result, PMI Composite dropped from 52.4 to 47.0, marking its weakest level since December 2023.

The data highlight a clear loss of momentum in demand, particularly across the services sector. According to S&P Global’s Eleanor Dennison, business activity contracted for the first time in a year-and-a-half, reflecting a fresh drop in demand for both services and manufactured goods. The deterioration in sentiment suggests that firms are becoming more cautious as external conditions worsen.

At the same time, inflation pressures are intensifying. Input costs rose sharply, with composite cost inflation hitting its highest level in over three years, while output charges climbed to their strongest since August 2023.

Dennison noted that the figures offer an early indication of how the Middle East conflict is feeding through to the global economy, with Australian firms facing rising costs, supply chain disruptions, and weakening demand—pointing to emerging stagflation dynamics.

Full Australia PMI flash release here.

RBNZ Governor Anna Breman warned that the Middle East conflict is likely to push New Zealand’s economy into a more challenging environment of higher inflation and weaker growth. Speaking today, she said policymakers expect “higher headline inflation over the near term, and somewhat weaker growth momentum,” highlighting the stagflationary nature of the shock stemming from elevated energy prices and global uncertainty.

Beyond inflation and growth, Breman pointed to "global financial stability risks", noting that global stress could affect funding conditions for New Zealand banks. However, she emphasized that the domestic banking system remains resilient, with strong capital and liquidity buffers. Recent stress tests suggest banks are “well-placed to weather severe geopolitical shocks,” offering some reassurance despite the volatile global backdrop.

On policy, Breman stressed the importance of avoiding a premature response to "temporary inflation spike" that monetary policy cannot directly address, while also guarding against the risk of inflation becoming entrenched. The committee will remain vigilant to ensure that temporary price pressures do not translate into persistent inflation, reaffirming that delivering low and stable inflation over the medium term remains the central objective.

Governor Breman emphasized that the RBNZ would be focused on medium-term inflation pressures, and that for now there’s little evidence these have lifted to suggest a need for near-term OCR hikes.

In a speech released this morning, Governor Breman emphasized that the RBNZ would be focused on medium-term inflation pressures, and that for now there’s little evidence these have lifted to suggest a need for near-term OCR hikes. The duration of the Iran war will be key.

Sticking to the playbook

As foreshadowed last week, this morning  the RBNZ released the speech that Governor Breman will deliver to a business audience at 2pm today, and which will be discussed in scheduled meetings with economists and the media over the course of the day. The speech set out the RBNZ’s preliminary thoughts on the likely impact of the Middle East war on the New Zealand economy.

The key takeout is the RBNZ will look through the near-term first round impact of the oil shock on inflation and is therefore very unlikely to quickly jump to rate hikes. Rather, rate hikes will only be brought forward should there be an accumulation of evidence suggesting that the oil shock is generating second-round pressures on wages and prices, leading to higher inflation over the medium term. Those second-round effects – which are more likely to occur if the conflict is prolonged – are unlikely to be evident for some time.

As we discussed in an article released at the onset of the conflict, the RBNZ faces two-sided risks, rather than the one-sided risk that has been contemplated by markets. Key quotes from the speech that illustrate this point are:

• “We should try to avoid reacting too early to near-term inflation pressures that monetary policy can do little about – or reacting too late if above-target inflation becomes embedded in the economy.”
• “As a forward-looking Committee, we tend to look through first round direct and indirect effects and focus on medium-term second round effects.”
• “Higher production costs often result in squeezed margins and lower real incomes, and tend to dampen economic growth. A slowdown in growth may in turn dampen inflationary pressures over the medium term.”
• “Recent events do have some similarities with the last time we saw consumer prices increase quickly, such as regional conflicts, global oil price increases, and shipping disruptions in the Middle East. But there are also some important differences that could impact our outlook for medium term price pressures.”
• “….while the recovery has broadened, it is still in its early stages, and the New Zealand economy continues to operate below capacity. Household and business balance sheets are also more fragile, with less scope to absorb significant price increases. This means it may be harder for businesses to increase prices, and it could be less likely that short-term price pressures driven by supply-side shortages will become embedded in medium-term inflation.”
• “A short-lived disruption and a temporary increase in petrol prices can – and should – be looked through from a monetary policy perspective if it is unlikely to have an impact on medium-term inflation outcomes….The picture changes if this disruption is longer lasting; if there are longer-lasting impacts on global productive capacity or domestic demand; or if there is a greater risk of heightened oil and other import prices feeding into higher inflation expectations and inflationary wage- and price-setting behaviour.”

The RBNZ is very much sticking by the playbook here by noting a bias to looking through what is currently judged to be a short-term supply shock. Monetary policy is poorly positioned to offset the short-term inflation impacts coming from the Iran war’s increase in oil prices and related supply chain impacts. The RBNZ’s focus on medium-term inflation pressures is entirely conventional, and the reality is that no one knows much about those right now.

What is known is that this shock has come at a time when the economy was at an early stage of the recovery and excess capacity remains high. Hence the situation is very different from 2022 when the Russian war impact on inflation added further medium-term inflationary fire to an already hot economy. Breman appropriately notes this as something that gives the RBNZ some space to assess whether these short-term pressures will translate to medium term pressures.

It’s unlikely the RBNZ will be raising rates in the next 6 months. It’s going to take time to work out how long this shock lasts, the impact on the economy and excess capacity and the implications for medium-term inflation pressures. OCR cuts similarly look unlikely while this assessment is being made.

The reaction of the exchange rate may well be influential in determining what happens next. The New Zealand dollar could be very vulnerable in this environment given our weak growth, low interest rates and supply chain vulnerabilities. Should the NZD trend lower (as would be conventional for this type of supply shock) then the medium-term calculus may change. Real interest rates will be negative for quite a bit for a while – hence our view of OCR hikes over 2027 remain very valid. Global interest rates might well also be rising that year.

The RBNZ will have more to say about the impact of the conflict on the economic outlook at the 8 April OCR Review which, as announced last week, will also be followed by a post-meeting press conference. It remains to be seen whether developments in the Middle East over the coming three weeks provide any additional clarity.

• USD/CAD experienced high volatility after the US postponed military strikes on Iran, leading to a "risk-on" sentiment shift.
• The resulting weakness in the US Dollar was offset by a massive ~7.5% drop in WTI crude oil, which prevented the commodity-linked CAD from making gains and left the pair flat near 1.3715.
• The bias is cautiously bullish, requiring a decisive break above the key technical level of 1.3730
• The pair's movement will be governed by the 5-day US/Iran discussion window, further WTI price swings, and the potential for new US tariffs on EU goods.

USD/CAD had a wild ride today much like markets as a whole. Early in the session, the pair reached a fresh high of 1.3755, testing the peak set in January.

Following a major geopolitical headline, the pair plummeted to an intraday low of 1.3683, testing critical technical support. By the afternoon, the pair settled into a flat, rotational pattern near 1.3715, as the market balanced a weaker US Dollar against falling oil prices.

The Trump seesaw continues

The defining driver was President Trump’s announcement to postpone planned military strikes on Iranian energy infrastructure for five days. This triggered a "risk-on" sentiment shift, reducing the "war premium" and safe-haven demand that had been propping up the US Dollar.

Crude oil (WTI) fell nearly 12% immediately following the news, eventually stabilizing near $90 (a 7.5% intraday drop). Since the Canadian Dollar is a commodity-linked currency, the massive drop in oil prices offset the US Dollar's weakness, preventing the CAD from making significant gains and leaving the pair "flat."

Remarks from Fed officials provided a backdrop of caution. Governor Stephen Miran urged policy-making based on long-term trends rather than "short-term headlines," while Chicago Fed President Austan Goolsbee warned that oil shocks remain "stagflationary," suggesting rate cuts might not happen until late 2026.

Factors affecting USD/CAD moving forward

Moving forward, the pair will likely be influenced by several high-impact variables:

The five-day "window" established by the US for discussions with Iran will keep markets on edge. Any breakdown in talks or a resumption of strike threats would likely spike the USD and oil prices simultaneously.

As Canada is a major crude exporter, the CAD remains highly sensitive to WTI price swings. If oil recovers on supply concerns, the CAD could strengthen; if de-escalation continues, oil may fall further, weakening the Loonie.

Markets are closely watching for "proof of inflation" from the Fed. A hawkish stance from the Fed compared to a potentially more dovish Bank of Canada (BoC) would provide long-term upward pressure on USD/CAD.

Reports of potential 15–20% minimum tariffs on EU goods by the Trump administration suggest a continuing protectionist stance that could bolster the USD through trade-war risk appetite.

Technical Analysis - USD/CAD

Back to the technicals though and USD/CAD continues to test the 1.3730 key level.

The daily chart shows USD/CAD is struggling to gain acceptance and record a daily candle close above the 1.3730 key level.

If the pair does gain acceptance above this key level, there is a confluence area just beyond that where the 100-day (black) and 200-day (orange) MAs are converging near the 1.3800 handle.

The 200-day MA at 1.3803 represents a "line in the sand", a break above this would signal a return to a long-term bullish bias.

Significant long-term support remains at 1.3501.

The Relative Strength Index (RSI) is sitting at 55.66, suggesting there is still room for further upside before the pair becomes overbought with momentum favoring bulls.

The bias is cautiously bullish but lacks conviction. A decisive break and hold above 1.3730 would likely trigger a run toward the 1.3800 handle. Conversely, if the pair drops below the moving average cluster at 1.3650, expect a move back toward the 1.3580 support zone.

USD/CAD Daily Chart, March 23, 2025

Source: TradingView.com (click to enlarge)