Over the weekend, the Middle East conflict intensified significantly as US strikes have wiped out senior Iranian leaders and hit key targets across the country. President Trump has also signaled a desire for regime change and swift action to reopen the strait. Investors clearly feel that securing this critical transit route is the only signal that truly matters right now.
As a result, commodity markets are reacting quickly to these heightened supply risks. Crude oil is surging, with WTI already trading well above $100, its highest level since March 13, as tensions escalate. Aluminum prices have also soared following attacks on key Middle Eastern production sites. However, this rally is isolated to specific sectors. Growth-sensitive metals like copper are losing ground, and a stronger US dollar is weighing heavily on gold and silver.
The energy shock is forcing investors into a highly defensive posture. Equities are dropping across the board, with Asian indices like the Nikkei and Kospi suffering steep declines right out of the gate to start a shortened week. Meanwhile, market volatility remains elevated and the US dollar is testing ten-month highs. The currency pressure is pushing Japanese authorities are now to issue severe warnings about potential market intervention to protect the yen.
Perhaps the most worrisome fallout from this crisis is the severe pain in global bond markets. The looming threat of energy-driven inflation is pushing long-term yields sharply higher around the world. We are seeing US 10-year Treasury yields near 4.46%, while UK gilts and Japanese government bonds are hitting multi-decade highs. Ultimately, this rising term premium reflects a global market bracing for sustained economic strain.
CAD: eyes key resistance at 1.39
The Canadian dollar’s recent descent to a two-month low suggests that domestic economic deceleration is now weighing more heavily on the currency than the traditional support offered by favorable terms of trade in the energy sector. Following a noticeably cautious tone from the Bank of Canada last week, the US-CA 2-year yield differential has stayed above 100 bps, showing a stronger USD against a backdrop of missed Canadian macro projections and tension in global fixed income market. This fundamental weakness is being compounded by bearish sentiment in the futures market, where leveraged funds have flipped to a net-short position on the Loonie. Such positioning signals growing skepticism among investors regarding a smooth economic transition as financial conditions continue to tighten and Middle East conflict escalates.
From a technical perspective, the USD/CAD is exhibiting strong upward momentum, currently trading above its 200-day Simple Moving Average (SMA) for the first time since mid-January. As illustrated on the hourly chart, the pair has climbed sharply from late-February lows near 1.3550, successfully breaching the 200-period SMA, currently tracking near 1.3769, to reach current levels around 1.3890. While the short-term trend is clearly bullish, consolidation around the 1.38 handle is likely in the near term, assuming there is no sudden spike in safe-haven demand. Looking at the wider technical landscape, 1.37 serves as the key long-term support level, while 1.39 stands as the critical long-term resistance that bulls will need to conquer.
Lurking behind these fundamental and technical drivers is significant geopolitical risk stemming from the Middle East, with markets positioning for volatile headlines. Traders will remain highly cautious of the “two-week extension” tactic frequently employed by Trump, who historically violates his own deadlines in either direction. A prime example occurred last summer prior to Operation Midnight Hammer; after publicly floating a two-week extension on June 19, 2025, citing potential negotiations with Iran, bombings commenced just two days later. With claims of Iranian negotiation interest appearing totally fabricated once again, markets must be on guard for sudden near-term actions that could abruptly shift risk sentiment.
Beyond the geopolitical noise, market attention will pivot to a crucial slate of economic data and central bank communications this week. On Tuesday, traders will monitor the monthly Canadian GDP figures for January. Wednesday brings the BoC’s ‘Summary of Deliberations’ for their March 18th decision, where markets will specifically watch for preliminary discussions on how the recent energy shock might impact the broader economy, keeping in mind the bank’s warning that it won’t let inflation risks spread. Finally, Thursday’s US Non-Farm Payrolls (NFP) report looms large as the week’s biggest wildcard. The critical question is when the current war-driven commodities shock will impinge upon hiring activity; historically, the closest comparator is the oil spike of 1990–91, during which payrolls, which had already been weakening, fell almost immediately. Maybe not as a strong analogy given the US is now a net oil exporter and its dependance on oil imports has faded over the years.
MXN: Changing tides for the Mexican Peso
The Mexican peso has faced a significant reversal in fortune recently, wiping out its year-to-date progress as it navigates a perfect storm of domestic and international pressures. This shift stems largely from a widening gap in monetary policy; while US rates remain under pressure, the Bank of Mexico recently surprised markets by lowering its benchmark rate to 6.75%. This move has immediately cooled the currency’s carry appeal. Market sentiment and interest rate swaps suggest with a 50% chance that another cut might be coming in the next meeting, pushing Mexico’s real yields below those of regional peers like Brazil and Colombia.
Beyond interest rates, the peso is grappling with deteriorating trade conditions and rising global uncertainty. Unlike some of its neighbors that benefit from energy exports during the Middle East conflict, Mexico’s status as a net oil importer means that climbing crude prices actually strain its economy while simultaneously fueling inflation risks. This puts the central bank in a difficult spot. If they continue to ease while the US Federal Reserve stays firm, they risk a weaker currency that could further drive up local prices. The situation is compounded by a cooling American economy, which traditionally acts as the primary engine for Mexican growth, leaving the peso vulnerable to a slowdown in its largest trading partner.
This environment of uncertainty is clearly reflected in the market’s risk appetite. Volatility for the pair has climbed significantly this year, particularly as geopolitical tensions in the Middle East have rattled global investors. While current volatility levels haven’t yet reached the extremes typically seen during major election cycles, the currency is clearly losing its “carry-haven” reputation among emerging markets. As the correlation between the peso and risk indicators like the VIX strengthens, the path of least resistance for the exchange rate appears to be toward further weakness, especially if global tensions continue throughout the week.
What’s happening in markets this week?
Beyond headlines from the Middle East conflict, investors are bracing for a heavy wave of inflation updates to see how the energy shock is filtering through the global economy. Inflation reports from Germany (Mon) and Tokyo (Mon) will set the stage for broader price readings from France (Tue) and the Eurozone (Tue). Additionally, investors will analyze manufacturing surveys from China (Tue) and growth revisions for the UK (Tue) to gauge the fallout from recent energy shifts.
Furthermore, these collective insights will reveal whether global price pressures are cooling or if regional economies are facing a more significant slowdown.
In the United States, the focus remains firmly on a sequence of vital labor market updates. After a challenging February performance, the upcoming March Non-Farm Payrolls (Fri) and the unemployment rate (Fri) are the most critical indicators of domestic health. Leading up to these releases, early signals will arrive via JOLTS job openings (Tue), private payroll changes (Wed), and weekly jobless claims (Thu). Consequently, these reports, combined with fresh snapshots of consumer confidence (Tue) and retail sales (Wed), will provide a comprehensive look at resilience.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: March 30 – April 3
All times are in EST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
