Dollar Mixed Against Major Peers; Technical Levels in Focus

To kick off the trading session, the greenback is showing a mixed performance against the three main currency pairs. EUR/USD is 0.13% lower, GBP/USD has slipped 0.20%, while the yen is gaining ground, as USD/JPY declines by 0.35%.

A more significant decline is seen in the New Zealand dollar, which has fallen 1.12% even after the RBNZ raised its policy rate. The Canadian dollar, in contrast, is losing ground ahead of the Bank of Canada's rate announcement, where a hold is anticipated. USDCAD has advanced 0.24% as market participants look for the decision and future guidance.

Overnight, the main development is an escalating military confrontation between the US and Iran, with Gulf nations once again involved in the response. Oil prices are maintaining Tuesday's strong gains while market participants evaluate the risk to maritime transport. Currently, crude oil futures stand at $89.50, a decline of roughly $0.70 on the day. In the previous session, the commodity jumped 5.20%, or $4.46.

• Late on September 1, CENTCOM reported completing strikes targeting Iranian Revolutionary Guard air defenses, radar systems, maritime installations, mine-laying equipment, and communications sites. The U.S. has confirmed these statements, but a comprehensive damage assessment is still pending.
• Iran's response extended across the region. Jordan reported that it intercepted 10 missiles, while three others landed in uninhabited areas. Bahrain said it intercepted drones, and Kuwait stated that a drone struck a residential building, though no casualties occurred. Iran claims U.S. military personnel were killed, but preliminary U.S. assessments indicate no fatalities.
• On Wednesday, the shipping firm Bahri confirmed that two Filipino sailors lost their lives on the SIDR during the Monday attack in the Strait of Hormuz. This corrects earlier reports from yesterday which stated that the crew was safe.
• Iranian officials reported five fatalities and dozens of injuries from a strike on a wedding ceremony near Sirik. These reports, however, have not been independently verified.
• Diplomatic efforts persist, but without a major advancement. On September 2, Pakistan stated that it is still engaged with both parties to resume talks. The Saudi foreign minister is calling on all sides to stay calm and re-engage in negotiations.

The high price of oil continues to be a worry for inflation and a geopolitical hazard. Increased energy expenses are intensifying the sell-off in bonds, boosting the dollar, and putting pressure on stock markets—a dynamic observed in Wednesday's trading.

The Reserve Bank of New Zealand increased its policy rate and indicated that a gradual approach to tightening is necessary to curb inflation without harming the country's uneven economic recovery.

• The RBNZ hiked its official cash rate by 25 basis points, bringing it to 2.75%, and the decision was unanimous.
• Inflation stood at 4.1%, driven mainly by elevated fuel costs stemming from the Middle East conflict. When vehicle fuels are excluded, inflation slowed to 2.9%.
• The central bank projects that inflation will return to its 1–3% target range by mid-2027, and will be close to 2% by the end of that year.
• Additional rate increases are still possible, but the trajectory is not set in stone. The current gradual tightening is intended to prevent the need for bigger, quicker moves down the line.
• Four members of the committee perceive upside risks to inflation, especially if high energy costs spill over into the broader price level. Two members view the risks as balanced.
• The economic recovery is still uneven. Export industries are performing better, while subdued household spending, sluggish housing market activity, and employment uncertainty are dragging on the domestic economy.

The central bank's tone was cautiously hawkish: it aims to stop energy-related inflation from taking root, but the weak recovery calls for gradual rate adjustments rather than forceful action. Despite the rate increase, the NZDUSD dropped sharply.

The Bank of Canada is scheduled to announce its rate decision at 9:45 AM, with expectations that it will hold rates at 2.25%. The probability of an increase before the end of the year is roughly 50%.