1.0 USD: US Dollar and DXY Analysis
The US Dollar Index (DXY) held a corrective move near the 100.00 level as of Tuesday, retreating from a nine-month high of 100.54 reached last Friday. This pullback is largely attributed to a significant retracement in oil prices, which eased immediate concerns regarding de-anchored consumer inflation. Despite this correction, Goldman Sachs (GS) notes that the macro backdrop remains challenging, with US GDP growth for Q4 2025 revised down to an annualized 0.7%, its weakest performance since early 2024.
JPMorgan (JPM) analysts highlight that the greenback has functioned as a "petrocurrency" recently, moving in tandem with energy prices due to the US's status as a top oil producer and the dollar's dominance in crude trade. GS macro updates indicate that while risk markets are rebounding, the market is pricing out near-term Federal Reserve rate cuts, with the CME FedWatch tool showing traders are confident no cuts will occur before the September meeting. Macquarie strategy suggests that the dollar remains a preferred tactical long while Middle East tensions persist, as the safe-haven appeal remains elevated.
The University of Michigan Consumer Sentiment Index dropped to 55.5 in March 2026, marking a three-month low as households react to the US-Iran conflict and rising gasoline prices. GS observes that although industrial production rose 0.2% in February, capacity utilization remains below long-term averages at 76.3%. JPM maintains that transit through the Strait of Hormuz will stay "increasingly conditional," potentially keeping a geopolitical premium embedded in the USD. Macquarie warns that a prolonged conflict could force the Fed to choose between supporting growth or reining in energy-driven inflation.
Current market positioning shows investors shifting back into the dollar as global equity indexes head for a third week of potential losses. GS analysts believe that if crude stabilizes, the "petrodollar impulse" will fade, leading to a broader de-escalation trade. However, JPM emphasizes that the odds of a rate cut in the September meeting are currently only near 50%, reflecting the high uncertainty. The DXY is expected to remain headline-driven, particularly surrounding the Xi-Trump summit delay. Macquarie lecturers note that diesel supply interruptions from South Korea and Japan could further globalize the inflationary crunch, supporting the USD on a relative basis.
2.0 G10 Currencies:
Euro, Yen, and Commonwealth Pairs
The Japanese Yen (JPY) continues to trade in the "intervention zone," with USDJPY hovering near 159.30. Japan’s Finance Minister Satsuki Katayama issued a stern warning, stating that authorities stand ready to take "bold measures" to curb heightened volatility. Goldman Sachs research suggests that while Bank of Japan (BoJ) Governor Kazuo Ueda remains cautious, a sustained rise in oil prices could speed up policy normalization as imported inflation worsens. JPM valuation models suggest USDJPY is significantly mispriced on a 2-year horizon, with a model estimate of 147.42 against the current spot.
The Australian Dollar (AUD) became a focal point after the Reserve Bank of Australia (RBA) raised the Official Cash Rate (OCR) by 25bps to 4.10%. Macquarie analysts note that the RBA is potentially the first G10 central bank to resume tightening in response to resilient domestic growth and energy-led inflation. GS macro views suggest the AUD is outperforming on an improved risk sentiment shift despite the broader geopolitical drag. AUDUSD is currently trading near 0.7075, supported by strong iron ore prices and a positive trade balance.
In the Eurozone, the EURUSD pair stabilized around 1.1518. Nomura and GS analysts highlight that the Euro remains sensitive to energy supply shocks, with HSBC projecting European gas prices to be 40% higher through 2026 due to the Hormuz closure. ECB rate hike expectations have pressured banks like Deutsche Bank and UniCredit, as yields jump toward 15-year highs. JPM fair value models place EURUSD near its 3-month model estimate of 1.1513, suggesting limited immediate mispricing.
The British Pound (GBP) firmed to 1.3333 as the Bank of England (BoE) faces its own inflationary pressures. GS economists anticipate the BoE will express increased concern about upside inflation risks stemming from energy costs during this week’s meeting. Meanwhile, the Canadian Dollar (CAD) dipped as Canada’s inflation rate dropped to 1.8% in February, its lowest since July. JPM views the CAD as vulnerable if the Bank of Canada (BoC) pivots toward a more dovish stance relative to the Fed and RBA. EURCHF shows significant mispricing with a Z-score of 2.33, indicating the Euro is overvalued against the Swiss Franc.
3.0 Asian Currencies:
CNY, MYR, and Regional Drivers
The Chinese Yuan (CNY) was supported by stronger-than-expected economic data, with industrial output rising 6.3% y/y in Jan-Feb. The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.8961, signaling a desire for stability amid major DXY moves. Nomura and GS point out that while China's infrastructure investment surged 11.4%, property investment remains a drag, falling 11.1%. JPM notes that the PBOC is likely to allow more fluctuation given the shift in terms of trade caused by the oil shock.
The Malaysian Ringgit (MYR) received support from a constructive investment outlook, with UOB highlighting record approved investments of MYR426.7bn in 2025. MUFG analysts note that Asian FX remains heavily dependent on the Strait of Hormuz situation; more than 95% of India's and a significant portion of Southeast Asia's energy imports are at risk. The Indian Rupee (INR) faces pressure from an LPG shortage, although WPI inflation rising to 2.13% indicates a steady recovery from deflation.
Korean Won (KRW) and New Zealand Dollar (NZD) both saw gains as risk appetite improved marginally. However, the KRW remains sensitive to South Korean refinery run cuts, as the country could face fuel shortages within weeks if Middle East crude flows do not normalize.
GS notes that Asia's civil aviation sector is already bracing for flight reductions as Thailand and China cease jet fuel exports. Vietnamese authorities have issued similar warnings to their aviation sector.The Philippine Peso (PHP) and Vietnamese Dong (VND) are operating in emergency mode, with governments activating fuel price stabilization funds and mandating work-from-home policies to conserve energy. Macquarie emphasizes that these smaller Asian economies lack the fiscal capacity to absorb sustained price shocks. GS macro views suggest that the Xi-Trump summit, now delayed by a month, remains the most plausible path to de-escalation for regional currency markets.
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