Bridge Over Troubled Water

March 17, 2026

Elias Haddad

Perceived risk of shipping through the Strait stabilizes, but risks linger.

DXY holds under 100.00 while Brent stays above $100 a barrel. Stocks and bonds stable.

The RBA delivered a 25bps cash rate target hike to 4.10% in a narrow 5-4 vote.

Brent crude oil prices are holding above $100 a barrel and natural gas prices in Europe remain just shy of recent highs. Iranian drones and missiles continue to batter energy infrastructure around the Persian Gulf. In parallel, USD is trading on the defensive against most major currencies, global sovereign bond yields pulled back from recent highs, while stock markets are finding a floor.

News around the security of shipping through the crucial Strait of Horuz is mixed. Some countries (China, Pakistan, India, Turkiye, France, Italy) are reportedly securing side deals with Iran to keep their ships moving. That has stabilized the perceived risk of shipping through the Strait.

Nevertheless, the head of the International Maritime Organization warned that naval escorts though the Strait cannot fully guarantee ships’ safety. The waterway’s narrow navigable channels (2-mile wide, or 3.7km) and proximity to Iran’s mountainous coastline leave vessels exposed to attacks.

For financial markets, the key issue is whether we are closer to peak fear than to another leg higher in shipping security concerns. We lean towards the former, but with a very low conviction given US action so far appears more reactive than strategic. As such, near-term USD risks remain skewed to the upside.

ADP weekly employment change for the four weeks to February 28 is due today (12:15pm London, 8:15am New York). For reference, ADP monthly employment growth was 63k in February.

AUSTRALIA

AUD/USD whipsawed around 0.7070 following the RBA policy decision. The RBA delivered a back-to-back 25bps cash rate target hike to 4.10% in a narrow 5-4 vote. According to Governor Michele Bullock, the four dissenters wanted a hawkish hold. Cash rate futures implied 62% odds of a hike ahead of the policy decision and slightly trimmed the probability (from 66% to 56%) of a follow-up rate increase at the May 5 meeting.

The RBA’s concern about upside risk to inflation suggests the tight vote split should not be interpreted as weak conviction to tighten further. The RBA warned that “inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations.” The RBA also pointed out that “Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation.”

Bottom line: we expect AUD/USD to resume trending higher once we reach peak fear regarding shipping through the Strait of Hormuz. Until then, AUD/USD risks are tilted to the downside.

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