• No passage, no peace for markets.

• US inflation check: past, present, future.

• RBNZ, RBI, NBP, BCRP, BOK all poised to stand pat this week.

Financial markets are on edge ahead of today’s deadline. President Donald Trump threatened further strikes on Iranian energy plant and bridge if Iran failed to make a deal and reopen the Strait of Hormuz by 8:00pm Eastern Time on Tuesday. Trump added it was “highly unlikely” that he would extend his new deadline.

US-Iran ceasefire odds were pared back after both countries rejected each other’s proposal to end the war yesterday. Brent crude oil prices rebounded but remain roughly 6% below the triple top at US$120 a barrel. The recovery in global stocks and bonds stalled, while the dollar index (DXY) is consolidating just above the top-end of its multi-month 96.00-100.00 range.

Unfortunately, the balance of risks points to a prolong energy shock. Iran has both the capability and the incentive to destabilize global markets and impose as much economic/political pain on the US to extract maximum concessions from its five conditions for ending the war: (i) Immediate cessation of aggression and targeted attacks, (ii) Ensuring the war will not recur, (iii) Payment of war damages and reparations, (iv) Ending of hostilities across all fronts, and (v) recognition of Iran’s sovereignty over the Strait of Hormuz.

A more persistent energy shock raises financial stability risks because it traps central banks in restrictive policy despite unimpressive growth and puts government debt on a more fragile and unsustainable path. As such, USD can continue to overshoot the level implied by rate differentials. Dollar funding needs tend to rise in periods of financial market stress due to the dollar’s dominant role in the global financial system (trade invoicing, cross border lending, global bond issuance, FX reserves). Beyond the near-term, we remain cyclically neutral on USD and structurally bearish.

US Inflation Check: Past, Present, Future

February PCE will capture the pre-shock inflation and consumer spending backdrop (Thursday). Headline PCE is seen at 2.8% y/y for a second straight month, core PCE is expected to dip 0.1pts to 3.0% y/y, and real personal spending is forecast to rise by 0.2% m/m vs. 0.1% in January. For reference, at its March 17-18 meeting, the FOMC’s median 2026 projection for both headline and core PCE stood at 2.7%.

March CPI will be the first inflation print since the war began (Friday). Headline inflation is poised to quicken sharply due to the surge in gasoline prices. Headline CPI is seen rising to a one-year high at 3.4% y/y vs. 2.4% in February and core CPI is expected to increase to a five-month high at 2.7% y/y vs. 2.5% in February. Provided that underlying inflation excluding energy remains contained, the Fed can afford to look through the oil-price shock and refrain from raising rates amid a mixed US labor market backdrop.

April University of Michigan consumer sentiment survey will offer a read on how well long-term inflation expectations are anchored (Friday). Consensus sees 5 to 10-year inflation expectations rise by 0.3pts to a six-month high at 3.5%, complicating the Fed’s effort to rein-in inflation back to its 2% goal. Today, the March New York Fed survey of consumer expectations takes the data spotlight (4:00pm London, 11:00am New York).

The minutes of the FOMC March 17-18 meeting will be worth monitoring for signals on how high the hurdle is for a rate hike (Wednesday). Recall, at that meeting the FOMC delivered a hawkish hold and Fed Chair Jay Powell flagged that the “possibility that next move might be hike did come up” during the policy discussion. Worth noting that the swaps curve has virtually fully priced-out Fed rate hike bets since March 26, when close to 25bps of tightening was implied.

Canada Job Check

March labor force survey is due on Friday. The economy is expected to add +14.9k jobs after losing -83.9k in February. Encouragingly, Canada’s favorable inflation backdrop gives the Bank of Canada (BOC) a small cushion to look through the oil-price shock and refrain from raising rates in the face of a worsening labor market. The swaps curve has trimmed BOC rate hike bets over the next twelve months from as much as 75bps on March 26 to around 50bps currently.

We still favor long CAD on the crosses as a good hedge against a more persistent energy price shock. Canada gets the terms of trade boost and has fiscal space to absorb some of the growth drag to domestic demand.

Central Bank Watch

The RBNZ is widely expected to leave the Official Cash Rate (OCR) unchanged at 2.25% for a second straight meeting (Wednesday). There is no updated Monetary Policy Statement (MPS) associated with this meeting, but Governor Anna Breman flagged an update to the bank’s inflation and growth outlook.

In a speech delivered on March 24, Breman already warned of “somewhat weaker economic growth in 2026” than anticipated in the February MPS and signaled that the bank will look through “a short-lived disruption and a temporary increase in petrol prices.”

The RBNZ has limited room to sidestep tightening despite excess slack in the economy given that headline inflation is already slightly above the 1 to 3% target range and most measures of core inflation are above the target mid point. The swaps curve price in nearly 100bps of OCR increases in the next twelve months.

A prolong energy shock will keep NZD trading on the defensive against most major currencies, weighed down by New Zealand’s unfavorable terms of trade dynamic and heightened stagflation risk.

The Reserve Bank of India (RBI) is widely expected to keep the policy rate unchanged at 5.25% for a second consecutive meeting (Wednesday). The risk is the RBI shifts its neutral stance to restrictive because of the worsening inflation outlook.

National Bank of Poland (NBP) is widely expected to keep the policy rate unchanged at 3.75% after cutting rates by 25bps at the last March 4 meeting (Thursday). Watch out to see if Governor Adam Glapinski leans into or against rate hike expectations. The swaps curve price-in 60bps of hikes in the next twelve months.

Peru’s central bank (BCRP) is widely expected to keep rates unchanged at 4.25% for a seventh consecutive meeting (Thursday). The risk of a hike cannot be ruled out after both headline and core CPI inflation quickened in March above the bank’s 1 to 3% target range.

Bank of Korea (BOK) is widely expected to keep the policy rate unchanged at 2.50% for a seventh consecutive meeting (Friday). The risk is a hawkish shift in the Monetary Policy Board’s rate projection, with hikes replacing a steady rate outlook over the next six months.