09.04.202613:50 Forex Analysis & Reviews: Canadian dollar's rise limited as gulf truce remains fragile

Oil prices on Thursday returned to around $100 a barrel, as hostilities in the Persian Gulf continue, albeit at lower intensity. Trump is not rushing to withdraw troops, demanding from Iran a real implementation of the agreement, however, it appears that both sides interpret the agreement completely differently. The United States and Iran are expected to meet for a round of talks in Islamabad on Friday.

Although Canada produces enough oil and gas to be much less dependent on the energy market crisis, its economy is still being held back in terms of growth, and the problems will only increase. The share of Canadian exports to the US is falling because higher tariffs have not been reduced, and whereas in 2024 it accounted for 76% of total exports, by February 2026 it was already 66%.

Exports are being redirected to other countries, mainly to Europe, however, Europe risks suffering from constrained energy supplies more than most countries, which will predictably lead to a reduction in consumer demand, and therefore to a decline in imports from Canada. There are no other open markets, and as for Canada's own domestic demand, its potential is quite limited and subject to fluctuations. In Q4 Canada's GDP grew by only 0.7% year on year, which is the weakest reading since Q1 2021, and the forecast for Q1 2026 is also rather pessimistic. The seasonally adjusted Ivey Business Activity Index collapsed in March from a fairly high 56.6 points to 49.7 points, that is, into contraction territory. Perhaps the March jobs report, which will be released on Friday, will add a bit of optimism, however, if it disappoints expectations, then, alongside the decline in business activity, exports, and weak consumer demand, it will pose a direct threat of a recession.

Speculative positioning in the Canadian dollar has shifted from neutral to bearish, amounting to -2.35 billion, the weekly change is -2.23 billion, and the implied price is moving higher.

A week earlier we set a target of 1.4139, and we are still maintaining that forecast, even despite the start of the truce in the Gulf. We proceed from the assumption that even if the truce holds, and even if talks begin, the probability that the parties will not be able to reach an agreement remains very high, and therefore Iran will cling to the trump card of closing the strait until the last moment, which will automatically stretch the process of exiting the crisis over many months. Support is at 1.3730/50, a decline to that level is unlikely and could occur only in the case of a real, not merely verbal, peace process in the Gulf.