EM: Rising risk sentiment stalls dollar rally for now

Rising risk sentiment has stalled the dollar rally for now. The US dollar index has stayed soft in yesterday’s session as investors lean into the classic de-escalation trade after the ceasefire was confirmed. Since last Tuesday, the greenback has given back nearly all its March gains, suggesting the conflict premium is fading fast. Positioning is shifting out of safe havens and back into growth-heavy sectors and emerging markets. As diplomatic channels reopen and gather momentum, the initial shock is giving way to cautious optimism around a more durable peace outcome.

Current market conditions have turned noticeably calmer, with FX volatility easing across both emerging markets and the G10. As the volatility charts show, the recent spike has rolled over, and that has helped EM currencies broadly regain traction. Optimism around potential US–Iran peace talks has added to the lift, while a softer dollar and cooler crude prices are giving investors a bit more breathing room. The result is a steadier backdrop for regional FX to reprice without the same headline-driven whipsaw.

In this setting, the Brazilian real has been one of the clearer winners. especially against the “Super-Peso”, still a strong story, but the BRL/MXN cross has pushed higher into early 2026, moving back toward the 3.46 area shown on the chart. The Real is also holding up well versus the dollar, breaking below the R$5 level for the first time since March 2024, and reinforcing the sense that Brazil has regained some relative momentum.

A few forces are doing the heavy lifting here: still-elevated local rates, a gradual rotation of capital away from the US, and supportive terms-of-trade dynamics with oil prices staying firm. Shifting political sentiment has also helped, giving the Real a buffer against higher food and fuel costs. Bottom line: a stronger BRL is providing practical relief on the domestic side by improving the inflation outlook at a time when the global macro picture is still in transition.

EUR: Sentiment improves, but proof still pending

The week has so far seen a steady mending of optimism, as both the US and Iran have refrained from resuming strikes while showing an inclination toward further talks. President Trump’s comments earlier in the week – that the war may be “close to over” and that discussions between the two sides could resume “over the next two days” – helped lift market sentiment. Iran’s apparent consideration of pausing shipments through the Strait, in order to avoid testing the US naval blockade and jeopardising renewed negotiations, has so far been interpreted as one of its clearest non‑verbal signals of “willingness to talk.”

That said, markets are growing increasingly impatient, and yesterday’s reversal of March’s trends – USD lower, EUR higher – proved more muted and contained. Against the backdrop of highly volatile headline flows that have whipsawed sentiment throughout March, investors have become more demanding of substantive evidence that talks are genuinely progressing and, most importantly, that the strait is close to re-opening.

It remains unclear how a return to a no‑conflict scenario would ultimately affect the US dollar. As the mechanical lift tied to rising energy prices and deleveraging flows dissipates, USD sentiment is likely to remain soft, with the Iran conflict simply adding to the broader list of “erratic policy events” that have weighed on the dollar since Trump took office last year (think “Liberation Day”). That said, market memory is often short, and investors have also shown signs of having grown more accustomed to Trump’s modus operandi since the start of his second term. We believe the US macro outlook – and how it absorbs any fading conflict‑driven drag – will remain the more pressing focus for markets, helping to keep the downside in the dollar contained should the US growth engine continue to show resilience.

For now, EUR/USD has stopped short of breaking through 1.18 – understandably so, as more concrete signs of de‑escalation are still warranted. The level has acted as key resistance since the pair’s post‑“Liberation Day” (2 April 2025) price action, reinforcing the view that a sufficiently strong catalyst to justify a clean breakout has yet to materialise.

CAD: Positive rebound on February data

Canada saw a positive economic rebound in February following a sluggish start to the year. Manufacturing sales climbed 3.6% to reach $71.2 billion, bouncing back nicely from January’s decline. Similarly, wholesale trade excluding petroleum rose 2.0% to hit $86.8 billion. While both of these figures slightly missed broader market forecasts, they were welcomed by markets

The motor vehicle sector was the true champion of this recent resurgence. As supply chain issues eased and assembly plants ramped up operations after winter maintenance, transportation equipment manufacturing soared by a massive 18.8%. Wholesale motor vehicle sales quickly followed suit, jumping 6.1% for the month. Unsurprisingly, Ontario and Quebec led the provincial gains by reaping the biggest rewards from this renewed industrial activity.

Looking beneath the surface, business operations are showing encouraging signs of balance moving forward. Wholesale inventories dropped slightly to lower the inventory-to-sales ratio, meaning goods are moving much faster off the shelves. Meanwhile, manufacturing unfilled orders actually hit a record high of $117.6 billion due to strong aerospace demand. This healthy backlog strongly suggests that Canadian factories will stay busy in the months ahead.

Alongside these domestic numbers, this week we’re seeing some near-term relief for the Loonie. The USD/CAD pair dropped notably from 1.3878 down to 1.3713, as de-escalation hopes and rising risk sentiment firmly take hold of the broader markets. In fact, since the recent ceasefire agreement was confirmed, the Canadian Dollar has gained roughly 1.3% against the Greenback. It is a clear sign that when geopolitical fears cool off, the US Dollar is exposed to make it visible its “risk policy” premium, allowing the CAD to get closer to its medium-term fair value.

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Calendar: April 13-17

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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.