Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar finished the holiday week on a slightly firmer footing, showing early signs of stabilization after a notably weak 2025. Following a sharp annual decline driven by narrowing yield differentials and expectations of Fed easing, the greenback edged higher as markets reopened and liquidity slowly returned. Thin year-end trading conditions limited volatility, but modest positioning adjustments helped the dollar post small gains as investors looked ahead to key US labour and inflation data that could influence the Federal Reserve’s policy path. While broader structural pressures on the dollar remain in place, including expectations of future rate cuts and stronger global growth outside the US, the past week reflected consolidation rather than renewed selling. Heading into early January, USD direction will hinge on whether incoming data reinforces the dovish narrative or gives markets reason to reassess the outlook for US rates.

The Canadian dollar traded with modest strength over the past week, as USD/CAD edged lower within a relatively narrow range and signalled mild loonie outperformance against the US dollar. Price action remained orderly, reflecting thin post-holiday liquidity, but the underlying bias favoured CAD as broader USD softness carried over from late 2025 into the start of the new year. Support also came from steady commodity prices, particularly crude oil, which continued to underpin sentiment toward Canada’s export-driven economy. With the Bank of Canada maintaining a steady policy stance and domestic fundamentals holding up, the loonie avoided any meaningful pullback. Overall, CAD finished the week slightly firmer, with near-term direction likely to remain range-bound but tilted in its favour unless USD momentum strengthens or commodity support fades.

The euro held its ground and edged slightly higher over the past week, trading with resilience through quiet, holiday-shortened markets. EUR/USD remained near the upper end of its recent range, reflecting continued pressure on the dollar after its sharp decline in 2025 and a lack of fresh catalysts to reverse that trend. Thin liquidity kept volatility muted, but underlying sentiment favoured the euro as investors maintained a cautious stance on the US outlook and expectations for Federal Reserve easing into 2026. Technical positioning also helped keep EUR/USD elevated, with the pair consolidating near multi-week highs rather than retreating. Looking ahead, the euro’s near-term direction will depend on incoming US data and Fed expectations, with the single currency likely to stay supported unless the USD stages a clearer rebound.

Sterling traded with a slightly softer tone over the holiday-shortened week, with GBP/USD easing back from mid-week highs as thin liquidity and year-end repositioning shaped price action. After briefly testing multi-week highs, GBP failed to sustain momentum and drifted lower toward the end of the week. Broader USD dynamics remained a key backdrop, with expectations of Fed easing limiting dollar upside, but this was largely offset by profit-taking and muted participation around year-end. In the absence of fresh UK catalysts, trading stayed range-bound, with technical resistance capping gains. Looking ahead, sterling’s direction will become clearer as normal liquidity returns, with upcoming US data and shifts in Fed and BoE expectations likely to determine whether GBP/USD resumes its upward bias or extends consolidationy.

The Japanese yen softened modestly over the final week of the year, slipping against major currencies. With liquidity thin, price action was orderly rather than volatile, but the underlying bias continued to favour a weaker yen, reflecting persistent interest-rate differentials and cautious expectations around the Bank of Japan’s tightening path. Even as the dollar had a weak 2025 overall, the yen stood out as an underperformer among major currencies, keeping policy and intervention themes firmly in focus. Domestic pressure over the weak yen has also intensified, adding another layer to the narrative. Looking ahead, the yen’s near-term direction will hinge on upcoming US labour data, signals from Japanese activity indicators, and any shift in BOJ communication or intervention rhetoric, with USD/JPY remaining sensitive to yield moves and headline risk.

The Swiss franc eased slightly over the final week of the year, with USD/CHF edging higher in thin holiday trading conditions. Moves remained contained within a narrow range, reflecting subdued liquidity rather than a meaningful shift in underlying sentiment. While CHF’s safe-haven appeal stayed intact, it offered limited support during the week as markets lacked fresh risk catalysts. The Swiss National Bank’s steady policy stance continued to anchor expectations, with officials signalling tolerance for current franc levels and keeping intervention as a backstop rather than an active driver. Next week, CHF direction will depend on the return of normal liquidity, upcoming Swiss inflation and labour data, and key US releases that could move yield expectations, with risk sentiment likely to remain an important factor.

The Chinese yuan traded with a mild soft bias over the final week of the year, remaining broadly stable in thin holiday conditions. With liquidity light, USD/CNY stayed confined to a narrow range, reflecting cautious positioning rather than any decisive shift. The People’s Bank of China continued to guide expectations through steady daily fixings, signalling a clear preference for stability. However, ongoing concerns around China’s growth outlook, including subdued domestic demand and property-sector weakness, capped upside potential for the yuan, while wide US–China yield differentials maintained underlying pressure. In the absence of major domestic data, CNY performance was driven largely by USD moves and regional risk sentiment, leaving the currency range-bound and policy-managed heading into the first full trading week of January.

The Indian rupee traded with a mild soft bias over the year-end holiday week, edging slightly weaker against the US dollar amid thin liquidity. USD/INR drifted modestly higher through the period, reflecting limited but persistent dollar demand. Trading remained range-bound, highlighting a lack of conviction as markets headed into the New Year. Higher crude oil prices late in December weighed modestly on sentiment, given India’s heavy reliance on energy imports, while mixed global risk appetite offered little support to emerging-market currencies. The Reserve Bank of India maintained a steady and neutral policy stance, which helped keep volatility contained and prevented more pronounced rupee weakness. Overall, INR performance was stable but slightly weaker on the week, driven more by external factors and holiday conditions than domestic surprises.

The Australian dollar was broadly weaker over the holiday-shortened week, finishing slightly below where it began as thin year-end liquidity weighed on the currency. AUD traded in a relatively tight range, signalling mild underperformance by the Aussie. Risk sentiment played a key role, as AUD, being a commodity-linked and risk-sensitive currency, softened amid pockets of risk aversion that carried through thin holiday markets. Commodity prices offered limited support, with iron ore and energy prices showing mixed, directionless moves. Reserve Bank of Australia commentary remained steady and neutral, with no surprise policy shifts, reinforcing the view that AUD movements during the week were dominated by USD flows, global sentiment, and low-liquidity trading conditions rather than changes in the domestic policy.

The New Zealand dollar traded with modest weakness over the holiday-shortened week and finished slightly lower overall. Early in the week, the NZD came under short-term technical pressure as the US dollar regained some ground after earlier softness. Thin year-end liquidity amplified these moves, with limited volumes exaggerating price action rather than fresh fundamental catalysts driving direction. Later in the week, the kiwi saw brief rebounds as markets reassessed US policy and priced the possibility of slower Fed tightening or future rate cuts, which helped cap further NZD losses. Throughout the period, sentiment was shaped by lingering uncertainty around the Reserve Bank of New Zealand’s policy following its extended easing cycle, leaving the currency sensitive to USD moves, risk sentiment, and shifts in interest-rate expectations.

The Mexican peso traded in a very tight and subdued range over the year-end holiday period, remaining broadly stable to slightly stronger amid thin liquidity. USD/MXN fluctuated between roughly 17.90 at the low on December 29 and about 18.01 at the high on December 31, before ending the week near 17.94 on January 2, reflecting a nominal change during the week. The muted price action was typical of New Year conditions, with low volatility, but technical signals continued to point to a softer USD bias into late December. Structural support for MXN remained in place, underpinned by Mexico’s relatively high interest rates, resilient carry-trade flows, and a broadly weaker USD trend at year-end, all of which helped the peso hold firm.