Lead

Oil prices remained near triple‑digit levels on Tuesday as the ongoing US‑Iran stalemate kept markets on edge, bolstering the US dollar and prompting a reassessment of Federal Reserve rate‑cut forecasts.

Background

The Strait of Hormuz, a critical chokepoint for global oil shipments, has been disrupted by heightened tensions between the United States and Iran. Traders have been watching for any diplomatic breakthrough or a resumption of hostilities that could affect supply flows. At the same time, central banks worldwide are navigating a mixed backdrop of resilient labour markets, persistent inflation and geopolitical risk, which together shape currency and rate expectations.

What Happened

Oil prices continued to range around $110 per barrel, with Brent slipping about 2% to $109.8 after President Trump paused a large‑scale strike on Iran to allow negotiations, according to Danske Bank research. The price level reflects the “prolonged US‑Iran stalemate” that keeps traders wary, as noted by ForexLive.

The US dollar index recovered on Tuesday after a sharp corrective move the previous day, finding fresh upside potential if it breaks above 99.40. The recovery was driven by firm expectations that the Federal Reserve will not cut rates this year.

Currency markets reacted strongly. The Japanese yen slid below 159 per dollar, reaching a near three‑week low, while the Norwegian krone outperformed the euro and the dollar, supported by Norway’s status as a net oil and gas exporter during the Iran conflict. The euro faced a likely retest of 1.1600 against the dollar, with ING noting the ECB must stay hawkish to contain long‑end yields.

In the Pacific, the Australian dollar fell against both the US dollar and the Japanese yen. MUFG’s Lee Hardman linked the decline to softer Chinese data and a cautious Reserve Bank of Australia, while AUD/JPY traded around 113.40 after RBA minutes flagged inflation and growth risks. The New Zealand dollar eased to just above 0.5850 against the dollar, retreating from Monday’s highs.

On the policy front, BNY strategists John Velis and David Tam abandoned their call for two Fed rate cuts this year, citing the ongoing Strait of Hormuz disruption and a labour market that has not weakened as expected. In Canada, attention turned to the upcoming April CPI release, which is expected to show rising inflation and could pressure the Bank of Canada’s rate outlook.

Market & Industry Implications

  • Elevated oil prices, sustained by geopolitical risk, are reinforcing the strength of currencies of net‑energy exporters, such as the Norwegian krone, while pressuring commodity‑linked currencies like the Australian and New Zealand dollars.
  • The US dollar’s recovery, underpinned by expectations of a tighter Fed stance, is contributing to broader risk‑off sentiment, which is reflected in the yen’s slide and the euro’s vulnerability near 1.1600.
  • Analysts at BNY see the combination of supply‑side shock and a resilient US labour market as reasons to push back anticipated Fed rate cuts, suggesting monetary policy may remain restrictive longer than previously thought.
  • Australian market participants are weighing the impact of a cautious RBA and weaker Chinese demand, which together are limiting AUD performance despite the energy‑related upside for other regional currencies.

What to Watch

  • Any diplomatic breakthrough or escalation in the US‑Iran dispute that could alter oil supply dynamics and price levels.
  • The US dollar index’s ability to break and hold above 99.40, which would signal further strength for the greenback.
  • Upcoming releases of Canada’s April CPI, which could confirm rising inflation and influence the Bank of Canada’s policy path.
  • Future statements from the Federal Reserve regarding rate outlooks, especially in light of the revised BNY stance.
  • Eurozone inflation data and ECB commentary that could affect the EUR/USD retest of 1.1600.