Last week, data on retail sales and indices of raw materials and industrial production for January-February were published. It goes without saying that everything that was relevant before the war in Iran has lost its significance, and inflationary processes in Canada are now defined by new factors.

Oil has stabilized below $100 per barrel, which is a sign of increasing moderate optimism in the markets regarding the war in the Gulf, with hopes that the US and Iran can reach an agreement to end hostilities without further escalation. Stock indices are rising, compensating for the panic sell-offs of the recent past, gold is recovering, and yields are decreasing.

At the same time, there are no signs of de-escalation. A senior advisor to the Supreme Leader of the Islamic Revolution, Rezaei, stated that the war will not end until all sanctions are lifted, compensation for damages is paid, and international legal guarantees are provided that aggression against Iran will not be repeated. He mentioned that there will be no ceasefire until these conditions are met. Markets tend to ignore such statements, focusing instead on Trump's further misinformation.

We believe that the decrease in tension is temporary, and risks will likely increase again in the near future. Fertilizer prices have risen about 40% since the beginning of the year, and diesel prices have increased by 50%, with a sharp rise in food prices approaching, which will, in turn, exacerbate the inevitable inflationary shock. For Canada, much will depend on the Bank of Canada policy, which is currently oriented towards further rate cuts. As long as the Bank of Canada does not publicly adjust its position, the Canadian dollar will face increasing pressure amid a market leaning towards a more hawkish stance from the Federal Reserve.

The net long CAD position for the reporting week has been fully liquidated, resulting in a change of -$2.6 billion. This is the second-largest amount sold against the dollar after the euro. The calculated price has not held below the long-term average and is attempting to move upward.

A week ago, we expected a breakout of the resistance at 1.3751, which did occur, but as more factors favoring the continuation of the USD/CAD rise have emerged, it is likely that bulls will try to push higher. The nearest target is the technical level at 1.3811, followed by a wide resistance zone at 1.3890/3930. If global tensions persist, the pair will rise, with this target in focus. A downward reversal seems unlikely, as does a rapid conclusion to hostilities.