Key Highlights

• RBA hikes rates to 4.1% in split vote.
• China to “remain in communication” with the U.S. on Trump’s visit.
• U.S. diesel prices top $5/gallon as supply pressures rise globally.

Chart of the Day

CAD FX instruments performing well ahead of BoC decision

^{Source: BNY}

CAD has been one of the best-performing G10 currencies in the past two weeks, over the period of the Iran conflict. Toward end-February, there were already signs of a turnaround taking place, as CAD saw some good inbound flows, possibly related to rebalancing. Over the past two weeks, however, interest has been very consistent and the currency is amid its best run of the last two months.

At a +0.07 YTD -date flow average, the currency has a comfortable buffer in place, although there is a sense that markets are trying to avoid excessive exposure heading into the BoC decision. USDCAD selling is currently severely outpacing CAD purchases, supporting the view that aside from hedging on the pair (or Canadian investors adding to hedges on their USD-denominated assets), there is very little interest in CAD on a relative-value basis. If anything, it would require significant selling of CAD on the crosses to bring the CAD aggregate inflow average down to +0.07 from 0.18 for CAD vs. USD. CAD versus higher-yielding G10 and EM currencies appears to be a carry trade, especially if the currency is seen as relatively liquid and easier to manage for relative-value participants in FX markets. As such, the fact that CAD is not being favored over AUD, GBP or EM names would cast doubt on its status as a solid haven during times of stress, even if there is an energy angle in play.

What's Changed?

The science of finance involves no luck, as its math balances probability against returns. So too, the current environment shows models clashing with headlines. Markets are mixed, with the (much anticipated) RBA rate hike, the ongoing war and the search for oil and for chips all driving a rethink – from a world of abundance to one of scarcity. The lack of larger-scale washout trades despite oil’s ascent leaves many investors worried about a delayed reaction should the Iran war continue longer than the expected four weeks. Measuring this unease is not as simple as looking at implied volatility. Across asset classes, the markets remain sanguine at a time when tail risks of larger dislocations exist. Global shares are mixed, bonds are slightly bid and USD is weaker, even as oil has jumped again.

Chips: South Korea’s SK Group Chairman Chey Tae-won said on Monday that the global chip wafer shortage is likely to persist until 2030, as AI-driven demand continues to outpace supply. Meanwhile, the biggest ⁠workers’ union at South Korea’s Samsung Electronics has threatened to disrupt chip production as members vote on a plan to strike in May. The Kospi gained 2.3% despite the headlines, and the underlying shift back to AI themes in tech despite the war is interesting. One key driver is the optimism of Nvidia CEO Jensen Huang who sees $1tn of revenue over two years from his firm’s AI chips. 

Duration: The BIS has warned that a prolonged conflict with Iran risks a financial meltdown driven by stretched valuations and further government borrowing. The markets are in the process of recalibrating risks, as AI and software along with the geopolitical pressures hit supply. The exit ramp for the war remains elusive, as U.S. military superiority has yet to make Iran want to negotiate, nor is there clarity for Israel, the U.S. or Iran about the political goals in a peace deal.

Central banks: While the RBA decision was a close call, BI’s decision to keep rates on hold was widely expected, and the difference between AUD and IDR is part of the explanation. The BoJ and BoC will both be watched for FX market reactions and the tone that central bankers strike in their forward policy guidance as they balance risks. Overnight, BoJ Governor Kazuo Ueda noted that inflation expectations are rising toward their 2% target. The ability to look through the current war and its implicit supply disruptions is coming up against a limit from inflation and expectations that prices will keep rising.

Bottom line: There may be luck for some on St. Patrick’s Day, but there is no strategy that seems to be dominant in driving risk across the world; investors are holding back and waiting, despite the pressure of Q1 ending soon and the arrival of spring. Many see the excuses of credit and AI and of the war and oil as sufficient cover for waiting. While markets have been binary of late, either buying or selling risk, waiting is a third option – one which may be the recipe for more future volatility, as the clarity of the moment hangs on the wisdom of central bankers and their statements.

What You Need to Know

Australia’s Reserve Bank (RBA) has raised its key interest rate by 25bp to 4.1% in a narrow 5-4 vote, marking back-to-back hikes amid rising inflation risks. After falling back from its 2022 peak, inflation rose materially in H2 2025 due to greater capacity pressures and sharply higher fuel prices linked to the Middle East conflict. Private demand growth strengthened more than expected in late 2025, driven by business investment, while consumption lagged. Labor market tightness increased slightly, with low unemployment and underutilization. Financial conditions tightened modestly, but credit remains accessible. The board sees inflation risks as tilted to the upside and will monitor the data closely, committing to price stability and full employment. ASX +0.459% to 5520.97, AUDUSD +0.171% to 0.7062, 10y ACGB -6.3bp to 4.939%.

China is restricting overseas-incorporated Chinese companies, known as red-chip firms, from seeking IPOs in Hong Kong, encouraging mainland incorporation instead. This regulatory shift aims to strengthen oversight, simplify compliance and curb capital flight risks amid a recent surge in IPOs. Companies must now file with the China Securities Regulatory Commission before listing in Hong Kong. The change raises concerns over high restructuring costs and reduced flexibility for investors, especially foreign venture capital and private equity funds, due to stricter capital repatriation rules. Hong Kong’s IPO market remains active, with over 400 companies in the pipeline and proceeds expected to reach $45bn in 2025. CSI 300 -0.73% to 4637.44, USDCNY +0.027% to 6.8888, 10y CGB -0.5bp to 1.841%.

Bank Indonesia has kept its policy rate on hold at 4.75%, shifting to a neutral stance from the previous dovish bias in February. The central bank removed references to potential rate cuts, citing rising inflation risks driven by higher commodity prices. Emphasizing foreign exchange stability, BI committed to intensifying market interventions to manage rupiah volatility amid external pressures, such as capping purchases of foreign currency at $50k per person per month, from $100k. Going forward, BI is expected to keep its rates unchanged in the near term. JCI +1.131% to 7101.694, USDIDR +0.03% to 16985, 10y IDGB 0bp to 6.913%.

U.S. diesel prices have surged above $5 per gallon, reaching $5.044. This marks the first time they have exceeded this level since December 2022, driven by supply disruptions linked to the Iran conflict and the effective closure of the Strait of Hormuz. The spike reflects constrained flows of crude, refined fuels, natural gas and fertilizers from the Persian Gulf, with diesel particularly impacted given the region’s refining capacity. The increase has already been evident across multiple states and extended to heating oil, which also moved above $5. Elevated diesel prices are expected to feed through to transportation, agriculture and construction costs, amplifying broader inflationary pressures and posing potential political risks as the U.S. midterm elections approach. Brent +3.493% to 103.71, WTI +3.722% to 96.98.

What We're Watching

U.S. March New York Fed Services Business activity is expected at -20 vs. -25.7 in February.

U.S. February pending home sales are expected at -0.6% m/m, -4.5% y/y vs. -0.8% m/m, -1.2% y/y in January.

U.S. Treasury sells $85bn in 6-week bills, $50bn in 52-week bills and $13bn in a 20y bond reopening. 

What iFlow is Showing Us

Mood: Risk aversion dominated investor positioning, with continued equity selling and ongoing demand for core sovereign bonds. iFlow Mood stood at -0.128.

FX: INR, TRY and SGD saw significant outflows, while PLN, ZAR and COP recorded strong inflows. In G10, USD and CHF attracted the most inflows, offset by sizable outflows in EUR and GBP.

FI: Strong demand for G10 core sovereign bonds, led by Eurozone government bonds and U.K. gilts, while the rest of the iFlow universe experienced net selling. Among EM, government bonds in Türkiye, China, Indonesia, the Philippines and South Korea saw significant outflows.

Equities: G10 equities were broadly sold, with the heaviest outflows in the Eurozone and Sweden, while EMEA markets saw stronger inflows. LatAm and APAC flows were mixed but sizable: strong buying in Brazil, Peru and Malaysia contrasted with selling in Colombia, China and India. Within developed markets, consumer discretionary and financials were the most heavily sold sectors, while the energy and consumer staples sectors attracted strong inflows. 

Quotes of the Day

“There is no such thing as bad luck. There is luck, or no luck at all.” – Jeffrey Fry

“You never know what worse luck your bad luck has saved you from.” – Cormac McCarthy

Economic Details

Germany’s ZEW economic sentiment index fell sharply to -0.5 in March, undershooting expectations of 38.7 and declining significantly from 58.3 in February. The current situation index unexpectedly improved to -62.9 from -65.9, defying forecasts of a further deterioration to -67.1. In the Eurozone, economic sentiment also turned negative, dropping to -8.5 against expectations of 24.0 and the previous reading of 39.4. The validity of such surveys will probably be limited for now, given that supply conditions have changed materially over the last few weeks and sentiment remains fluid, at the mercy of how the situation evolves in the Middle East. DAX +0.008% to 23565.79, EURUSD +0.332% to 1.1513, 10y Bund -1.9bp to 2.933%

Italy’s February CPI rose by 1.5% y/y and 0.7% m/m, confirming a moderation from the preliminary estimate of 1.6% y/y but marking an acceleration from 1.0% in January. The increase was primarily driven by stronger services inflation, with transport services at 2.9% y/y and recreational and personal services at 4.9% y/y, alongside unprocessed food at 3.7% y/y. Core inflation rose to 2.4% y/y, while goods prices remained negative at -0.2% y/y and services accelerated to 3.6% y/y, widening the sectoral gap. Energy prices continued to slide, down 6.6% y/y, partially offsetting broader pressures. The harmonized index (HICP) also rose 1.5% y/y, while carry-over inflation for 2026 stood at 1.1%. FTSE MIB -0.027% to 44335.71, EURUSD +0.07% to 1.1513, 10y BTP -2.3bp to 3.702%.

Spain’s quarterly labor cost survey for Q4 2025 shows a 3.8% y/y increase in total labor cost to €3,382.48 per worker per month. Wage costs were up 3.6% and other costs rose 4.4%, driven by a 4.5% increase in mandatory social security contributions. The highest labor cost increases were in education (+7.8%) and transport and storage (+6.2%), while arts and mining both saw decreases. Job vacancies totaled 155,737, down 7,719 y/y, with 86.3% of them in services. Spain continues to enjoy one of the strongest economies in Europe, which means additional vigilance is required in the middle of a supply shock. IBEX 35 +0.141% to 17127, EURUSD +0.07% to 1.1513, 10y Bono -1.6bp to 3.424%.

Switzerland’s producer and import prices fell by 0.3% m/m and 2.7% y/y in February, with the index level at 99.5, reflecting broad-based disinflation despite some energy-related increases. The producer price index dropped by 0.5% m/m and 2.3% y/y, driven by falls for pharmaceutical, chemical and meat products, while electricity and petroleum products rose. In contrast, the import price index increased by 0.2% m/m but fell by 3.5% y/y, with higher prices for oil, gas and metals offset by declines in chemicals, plastics and paper. Energy components showed notable monthly increases, particularly petroleum products, while core inflation remained subdued, indicating limited underlying price pressures. SMI +0.059% to 12889.75, EURCHF 0% to 0.90632, 10y Swiss GB -1.3bp to 0.369%.

Norway’s March inflation outlook indicates price growth of 3.2% y/y this year, remaining elevated due to higher import costs linked to the Middle East conflict and previous strong wage growth, before easing toward the 2% target by 2029. The latest Statistics Norway economic trends report highlighted that wage growth is projected to slow from 4.9% to 4.0% this year and toward 3% longer-term, while a stronger krone supports disinflation. Policy rates are expected to remain at 4.0% this year, with no cuts anticipated until 2027, and then to reach 3.5% by 2029. Housing investment remains weak following a 25% contraction, while house prices are projected to rise over 20% by 2029. Unemployment is expected to decrease from 4.5% to just above 4%. OSE -0.18% to 1963.09, EURNOK -0.332% to 11.0913, 10y NGB +3bp to 4.391%.

Türkiye’s housing price index increased by 1.8% m/m and 26.4% y/y in February, with the index level at 215.5, while prices were down 3.9% in real terms. Price growth remained broad-based across major cities, with Istanbul, Ankara and Izmir recording m/m gains of 2.2%, 1.7% and 1.4%, respectively, and y/y increases of 28.0%, 29.7% and 25.8%. By region, annual price growth ranged from 31.0% at the upper end to 19.7% at the lower end. Meanwhile, the new tenant rent index rose by 1.6% m/m and 34.2% y/y, reaching 298.3, with real rents up 2.0%. Istanbul led rental inflation at 41.0% y/y. BI 100 +0.502% to 13021.82, USDTRY +0.072% to 44.2053, 10y TGB -19bp to 32.6%.

Japan’s January 2026 tertiary industry activity was up 1.7% m/m and 1.5% y/y, in the biggest m/m jump since August 2020 (1.8%). Key contributors to the m/m increase included information and communications (+4.0% m/m), retail trade (+4.8% m/m), finance and insurance (+3.9% m/m), wholesale trade (+2.4% m/m) and electricity, gas, heat supply and water (+3.9% m/m). Falls were recorded in living and amusement-related services (-2.0% m/m) and real estate (-0.7% m/m). Nikkei -0.094% to 53700.39, USDJPY +0.038% to 159.17, 10y JGB 0bp to 2.276%.

New Zealand food prices rose 4.5% y/y in February 2026, up from 4.2% in January 2026. The main contributors were meat, poultry and fish (+7.5% y/y) and fruit and vegetables (+9.4% y/y). Beef mince prices surged 23.2% y/y, in the largest annual increase since June 2006. Conversely, olive oil (-22.1% y/y), fresh eggs (-6.2% y/y) and potato crisps (-3.2% y/y) saw prices come down. Monthly food prices fell 0.1% m/m in February, led by decreases in grocery food (-0.4%), fruit and vegetables (-0.8%) and meat (-0.1%). Domestic and international airfares rose 10.6% and 1.8% y/y, respectively. New Zealand government bonds held by foreign investors rose to 58.8% of total issuance in February, from 57.8% in January. The secondary market total value increased to NZ$198.79bn from NZ$197.05bn in January. Non-resident holdings reached NZ$116.86bn, up from NZ$113.83bn, with nominal bonds at NZ$112.39bn and inflation-indexed bonds at NZ$4.47bn. Non-resident repo holdings also increased to NZ$9.10bn from NZ$6.71bn. NZX 50 +0.134% to 13182.23, NZDUSD -0.326% to 0.582, 10y NZGB -6.6bp to 4.673%.

South Korea’s Import Price Index increased for the eighth successive month in February on rising oil prices (+1.1% m/m and 1.2% y/y vs. 0.7% m/m, -0.9% y/y in January). The Export Price Index (KRW basis) rose 2.1% m/m and 10.7% y/y (vs. 4.0% m/m, 7.8% in January). The Export Volume Index grew 16.6% y/y, while the Import Volume Index rose 10.6% y/y. The Export Value Index surged 28.6% y/y, while the Import Value Index climbed 7.9% y/y. Key export sectors included manufacturing products, with notable price gains in computers, electronic and optical equipment. Import prices rose mainly in raw materials and mining products. KOSPI +1.633% to 5640.48, USDKRW +0.078% to 1491.5, 10y KTB -2bp to 3.68%.

Singapore’s February 2026 non-oil domestic exports (NODX) were up 4.0% y/y (January: +9.2%), driven by electronics, notably ICs (+51.2% y/y) and disk media products (+96.3% y/y), while non-electronics exports shrank by 6.9% y/y. Non-oil re-exports (NORX) increased by 21.9% (January: +51.3%), led by electronics (+40.9%), with modest growth in non-electronics (+0.5%). Total merchandise trade grew by 13.6% (January: +23.8%), with exports up 11.0% and imports rising 16.6%. Key NODX markets expanding in February included South Korea (+50.5%), Taiwan (+31.1%) and Hong Kong (+21.7%), supported by strong electronics and non-monetary gold exports. STI +1.156% to 4924.99, USDSGD -0.008% to 1.2791, 10y SGB +2.9bp to 2.125%.