Canadian Dollar FX Weekly Market Update - Apr 26 to May 02, 2025

After weeks of relentless selling, the US dollar’s decline may be nearing exhaustion—and a rebound could be around the corner. While trade and political theatrics battered the greenback, cracks are beginning to show in the bearish narrative. President Trump appears to be dialing back his most aggressive policies, hinting at a thaw in trade tensions. His surprising détente with Fed Chair Powell has also eased fears of political meddling at the central bank. While the capital poured out of US markets, dragging the dollar lower despite soaring Treasury yields and a crumbling stock market, the disconnect may be fading. With inflation risks rising and Fed rate cuts likely pushed further down the road, the stage is set for the dollar to regain its composure. All eyes now turn to next week’s crucial economic data—Non-Farm Payrolls, Core PCE, and ISM Manufacturing—which could signal whether the Fed’s hands are tied by Trump’s policies.

After months anchored near the 1.44 mark, USD/CAD has tumbled down to 1.38, its strongest level in six months. Behind the loonie’s rebound is a mix of tariff immunity and simmering optimism around global trade dynamics. The White House’s recent backpedal on trade aggression has also boosted demand for the loonie. The Bank of Canada’s first hold since last year came with a cautious tone and a rare dual-scenario forecast, projecting sluggish growth and softer inflation in both best- and worst-case trade outcomes. The loonie faces headwinds from sliding oil prices amid demand concerns and rising OPEC+ output. Political risk remains low ahead of the April 28 election, with markets unfazed by polls projecting a strong Liberal majority under Mark Carney. Attention now shifts to next week’s GDP data, which could be pivotal, especially with the BoC expecting near-term stagnation. For the CAD to sustain its gains, stability in energy markets and a calm global backdrop will be critical.

Expected weekly trading range:

1.369 - 1.411

The euro’s recent surge has puzzled policymakers, with ECB President Lagarde calling the rally counterintuitive in light of traditional macroeconomic models. Typically, in a trade war, the victims’ currencies weaken to cushion growth shocks. Instead, the euro has soared, raising alarm bells in Frankfurt. Lagarde’s remarks signal growing concern within the ECB. If the rally continues, it could force the central bank into a more dovish stance, particularly if inflation risks recede and rate cut bets rise. Analysts warn this disconnect makes EUR/USD look increasingly overvalued relative to short-term fair value metrics, suggesting the rally may have run its course. Looking ahead, upcoming eurozone inflation data could offer a reality check. If figures edge closer to the ECB’s target, markets may double down on rate cut expectations—putting fresh pressure on the euro. In short, the single currency may soon find that its strength comes at a cost.

Expected weekly trading range:

1.546 - 1.594

Sterling remains buoyant against the struggling USD but continues to hover near recent lows versus the euro. The pound looks undervalued relative to the euro—yet slightly overpriced against the greenback. Next week’s light UK data calendar offers little to shift market expectations of a 25bps rate cut at the Bank of England’s May 8 meeting. As a result, near-term GBP direction is likely to be shaped more by global risk trends and USD momentum than domestic drivers. GBP will likely shadow broader dollar dynamics, which hinge on whether US equity and bond markets can stabilize. Meanwhile, with EUR/GBP appearing significantly overvalued, a correction lower may be on the cards—especially if the ECB continues to lean dovish. Markets will be watching closely to see if May’s BoE decision or shifting global conditions can spark a trend reversal for the pound.

Expected weekly trading range:

1.811 - 1.868

As US-Japan trade negotiations gather pace, the yen stands resilient amid a flurry of diplomatic activity. Markets are watching closely: a breakthrough trade deal could ease US stagflation risks and lift investor sentiment. While past remarks from President Trump about the yen’s unfair weakness raise some concern, recent assurances from Bessent suggest exchange-rate clauses are off the table for now. Meanwhile, the Bank of Japan is expected to leave its policy rate unchanged next week. With inflation firming and wage growth accelerating, the BoJ is likely to maintain a hawkish tone, though trade uncertainty and tariff fallout will keep policymakers cautious. With USD/JPY now well below the BoJ’s previous comfort zone of 145–155, any remarks Ueda makes on the yen will be closely parsed. But given the sensitivities around FX in trade talks, expect him to tread carefully—and avoid any comments that might weaken the JPY.

Expected weekly trading range:

102.174 - 105.327

The Swiss franc has surged in lockstep with gold, emerging as the top-performing G10 currency since President Trump’s dramatic Liberation Day declaration escalated global trade fears. The move isn’t limited to spot markets as CHF option pricing has spiked showing clear evidence of panic-driven demand for safe-haven hedging. Yet questions swirl around whether the SNB has stepped in behind the scenes. So far, SNB sight deposit data suggest no major intervention but the bank may also be holding fire to avoid the politically sensitive currency manipulator label. Looking ahead, all eyes are on upcoming SNB commentary for any signs of concern. But for now, the franc is trading almost entirely on global risk sentiment. Should tensions cool or a trade breakthrough emerge, the CHF’s gravity-defying run could face its first real test.

Expected weekly trading range:

0.591 - 0.609

The Chinese yuan posted modest gains last week. This relative stability reflects a delicate balance between domestic caution and global pressures, as markets digest strong US economic data, evolving trade talks, and shifting growth forecasts. While the USD retained strength on the back of resilient macro indicators and hawkish policy, CNY showed resilience amid growing concerns about slowing economy. The IMF’s downgrade of China’s 2025 growth outlook to 3.9% added to investor caution. With the upcoming Labor Day holiday likely to thin trading volumes, markets could see short-term volatility. Investors will also be closely watching PMI data and any PBOC or trade policy announcements that could sway sentiment. For now, the yuan remains steady—but its path forward hinges on economic signals, policy direction, and the broader pulse of global trade relations.

Expected weekly trading range:

5.181 - 5.339

The rupee saw minor depreciation this week as the dip followed heightened geopolitical tensions and renewed dollar strength. A militant attack in Kashmir triggered retaliatory measures between India and Pakistan, including treaty suspensions and airspace closures—rattling investor confidence and adding to regional volatility. At the same time, a stabilizing USD, supported by easing US-China trade tensions, exerted further pressure on the rupee. On the positive side, India’s forex reserves surged to $686.15 billion, marking a 6-month high—thanks to RBI. The boost provides a key buffer against external shocks. Looking ahead, the focus will remain on regional geopolitical developments, RBI policy signals, and global macro indicators. With $464 million in recent equity inflows and the RBI’s accommodative stance in place, the rupee could regain traction.

Expected weekly trading range:

60.706 - 62.554

The Australian dollar remains stuck in a tight range, caught between a weakening USD and persistent global risk aversion. Ongoing US-China trade tensions continue to act as a ceiling for the AUD, and any tariff relief that doesn't include China offers only limited help. Domestically, markets are heavily priced for further RBA easing, with bets even surfacing for a 50bps cut. Yet sticky inflation remains a hurdle. Next week’s Q1 CPI report will be key: a softer-than-expected reading could clear the way for a May rate cut, though with expectations already fully baked in, the AUD may prove resilient unless the data seriously underwhelms. Broader USD dynamics and US data, particularly ISM, PCE, and labour figures will shape near-term AUD moves. However, without a meaningful recovery in Chinese PMIs or a breakthrough on tariffs, the Aussie looks poised to struggle.

Expected weekly trading range:

0.881 - 0.903

The New Zealand dollar has managed modest gains on the back of broad USD weakness, but like its Aussie counterpart, it remains largely rangebound due to lingering risk-off sentiment and global trade uncertainty. While the RBNZ recently cut rates to 4.75%, stronger-than-expected Q1 inflation at 2.5% has complicated the central bank’s dovish path. The bank is still likely to remain accommodative, but market pricing suggests little room for surprise on the rate front. Next week’s US economic data will be pivotal. Any signs of stagflation in the US could weaken the USD and give the NZD a lift. Meanwhile, China’s upcoming PMIs may shed light on the damage from trade frictions, which could weigh heavily on New Zealand’s export outlook. For now, the NZD remains on a cautious footing, caught between global headwinds and limited domestic catalysts.

Expected weekly trading range:

0.818 - 0.843

The Mexican peso continued its impressive run this week, hitting its strongest level against the US dollar since October 2024. Multiple factors are fueling the peso’s momentum. A broadly weaker USD has created favourable conditions for emerging market currencies. In Mexico, slightly hotter-than-expected inflation remains within Banxico’s target range, supporting speculation of a 50 bps rate cut. Improved global risk sentiment—particularly from easing US-China trade tensions—has also helped the MXN attract investor interest. However, economic uncertainty lingers as some analysts warn Mexico may have slipped into a technical recession. President Sheinbaum maintains a bullish economic outlook, dismissing such claims. Looking ahead, the peso’s path will hinge on key variables, including Banxico’s policy tone, US economic data, and global trade developments.

Expected weekly trading range:

13.919 - 14.301