Rising oil prices drive global interest rates higher

Morning FX

After the International Energy Agency (IEA) announced the release of 400 million barrels of strategic oil reserves,oil prices instead of falling, rose. On one hand,the use of the largest strategic reserves in history reflects the severity and persistence of the current energy crisis, intensifying market panic; on the other hand,the 400 million barrels of oil reserves, compared to the daily shipment volume of 20 million barrels through the Strait of Hormuz, can only support 20 days—this still cannot solve the current energy shortage problem .

I. Global Bond Yields Surge Collectively

As concerns about inflation intensified due to rising oil prices, global bond yields soared across the board. Let’s first take a look at the rise in overseas sovereign bond yields since the conflict began on February 28, 2026.

The most dramatic case is the UK, where the 1-year government bond yield rose by 39bp, and the 10-year yield by 45bp; Germany's 1-year government bond yield also climbed by 24bp, with the market now pricing in 1.5 rate hikes by the ECB within the year; in the US, the extent of the rate hikes has been relatively moderate, far less than in Europe and Australia. From the perspective of interest rate differentials, it explains why the US dollar has not appreciated significantly alongside oil prices recently.

Next week, global central banks are scheduled to convene for policy meetings in quick succession. The market expects that Australia may hike rates by another 25bp, possibly sparking another round of global interest rate increases.

• Australia RBA: Rate hike of 65bp (Next policy meeting: March 17)

• European Central Bank ECB: Rate hike of 40bp(Next policy meeting: March 19)

• Bank of Canada BOC: Rate hike of 30bp(Next policy meeting: March 18)

• Bank of England BOE: Rate hike of 10bp(Next policy meeting: March 19)

• Federal Reserve FOMC: Rate cut of 30bp(Next policy meeting: March 18)

II. In the Foreign Exchange Market, Who Is the King?

In the foreign exchange market, alongside strong performances from commodity currencies like the Australian dollar and Canadian dollar, the Renminbi has also demonstrated a strong safe-haven property, basically returning to pre-conflict levels, with the Renminbi CFETS Index back above 100.

Why has the Renminbi performed so strongly?

On one hand, it is mainly supported by strong settlement forces for the Renminbi. According to export data released this week,exports in January–February reached USD 656.58 billion, up 21.8% year-on-year, far exceeding market expectations and marking the strongest start of the year.

On the other hand, China’s exposure to high oil prices is controllable. China's energy consumption is mainly coal-based, and in recent years, the development of new energy has further reduced reliance on oil. By 2025, oil will account for only 18% of China's total energy consumption, far lower than the EU and Japan (where oil dependence is about 38%), making the impact of rising oil prices on China's GDP relatively limited.

Looking ahead, the medium and long-term outlook for Renminbi appreciation remains positive, but as the Renminbi Index has already reached a relatively high level of 100, the pace of appreciation is expected to be relatively moderate moving forward.