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Central banks no longer look through energy shocks, and that shift favours the currencies of energy and commodity exporters.
The Pound has lost ground to the Australian Dollar, Canadian Dollar and Norwegian krone over the past month as an energy price shock rewards commodity exporters and the central banks prepared to tighten against it.
The Past Month in Numbers
1. Pound-to-Australian dollar: down 1.5% to 1.8800.
2. Pound-to-Norwegian krone: down 1.1% to 12.6025.
3. Pound-to-Canadian dollar: down 0.4% to 1.8732.
"More broadly in G10 FX, the commodity bloc has been the relative outperformer, with NOK, AUD and CAD supported by higher energy prices, which have partly offset broader USD strength," says Danske Bank.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Why Energy Exporters Are Winning
Brent crude remains above $100 a barrel as the Iran war continues to disrupt supply through the Strait of Hormuz. Higher energy prices lift the terms of trade of commodity exporters, meaning the price of what they sell abroad rises relative to what they buy.
The same shock squeezes the real incomes of energy importers such as the UK: Oxford Economics estimates a sustained $10 rise in the oil price cuts world GDP growth by about 0.1 percentage points, and its revisions put the UK at the lower end of the consensus range for growth next year.
Central Banks Change the Playbook
"The old mantra that central banks look through the inflationary effects of energy price shocks no longer applies for many," says Ryan Sweet, Chief Global Economist at Oxford Economics.
The Fed, the ECB and the Bank of Japan all raised interest rates in September, and Oxford Economics expects the Bank of Canada and the Bank of England to follow soon.
"Central banks are inherently risk managers and could hike rates until they see clear signs that inflation is moving back toward their target, and quickly – this isn't a one and done for many," says Sweet.
Currency by Currency
Australian Dollar
Markets price a 90% chance of an RBA hike this month, according to Commonwealth Bank of Australia.
"The market was only too happy to add a little more to September hike pricing, now sitting at 90%, with plenty of pressure now on the RBA to deliver," says CBA.
Westpac has brought its call for an RBA hike forward to September.
Thursday's August labour force survey is the next test of that expectation, as a weak print could push back on 'hawkish' RBA pricing that has proven a boon to the AUD in 2026.
That said, the Aussie's support has limits, with copper - a key commodity marker - down 3.6% last week according and Thursday's Trump-Xi summit a test for China-linked demand.
Canadian Dollar
The Canadian Dollar has leaned on oil for support as oil exports are a major source of earnings for the Canadian economy. The rise in oil prices is therefore an obvious source of support for the currency.
Domestically, Canadian inflation held at 3.0% in August, although the Bank of Canada's preferred core measures, CPI-median and CPI-trim, sit at 2.0% and 1.9%.
Governor Tiff Macklem speaks in Halifax on Monday, and National Bank of Canada expects him to address how rising energy prices bear on the policy path.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistNorwegian Krone
The krone is 2026's best-performing major currency, confirming it is a major beneficiary of the turmoil in the Gulf.
However, "while higher energy prices are an obvious positive for NOK, narrower interest-rate differentials and softer risk sentiment work in the opposite direction," says DNB Carnegie.
The Pound recovered 0.3% against the krone last week as Norwegian rate differentials narrowed.
DNB Carnegie expects Norges Bank to hold rates this week, while warning that the risk of a hike remains substantial.
Danske Bank calls the decision close to a coin toss.
The Risk to the Trade
US Central Command said on Saturday that oil and gas shipments through the Strait of Hormuz over the past two weeks reached a six-month high.
A sustained recovery in Hormuz flows would erode the energy premium behind commodity currency gains.
Norges Bank's decision this week is the first test, with a hold set to narrow rate differentials further and extend the Pound's recovery against the krone.
