Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar weakened last week as market sentiment turned cautious and investors increasingly priced in a potential Federal Reserve rate cut in December. With the DXY drifting toward the lower end of its recent range, traders grew more skeptical about the strength of the US economic backdrop amid softer manufacturing signals and signs that consumer demand had begun to cool. Rising confidence in a dovish shift from the Fed kept the dollar under steady pressure, leaving it directionally biased lower even though it ultimately remained range-bound rather than breaking decisively. This backdrop set the tone heading into the new week, with markets looking to fresh data and Fed communication for any catalyst strong enough to shift sentiment.

The Canadian dollar strengthened last week as a surprisingly robust employment report revived confidence in the domestic economy and boosted market appetite for the loonie. Canada added far more jobs than expected, pushing the unemployment rate down to a 16-month low and helping propel CAD to a 10-week high against the US dollar. The positive tone was reinforced by stronger-than-anticipated Q3 GDP and easing inflation, which suggested that the economy was stabilizing after earlier softness. With the Bank of Canada seen holding rates steady following its October cut, investors viewed CAD as relatively well-supported, especially against a softer USD backdrop. While external factors such as oil prices, global risk sentiment, and US yield movements still pose risks, last week's data firmly improved the loonie’s near-term outlook and set a constructive tone heading into this week.

The euro held largely steady last week, trading in a narrow band against the Canadian dollar. Against the US dollar, however, the euro managed to edge higher as broad USD softness, driven by firm expectations of a Fed rate cut, helped lift EUR/USD toward multi-week highs. Support for the euro also came from stronger EU data, including a notable rebound in composite PMIs and an upward revision to Q3 GDP. With inflation now hovering near the ECB’s 2 percent target and President Lagarde maintaining a cautious, data-dependent tone, the policy outlook remains steady and has helped anchor EUR sentiment. Looking ahead, the euro’s trajectory will depend heavily on incoming inflation figures, ECB communication, and fresh growth data, while swings in global risk appetite and US dollar moves will continue to influence its broader direction.

Sterling strengthened last week as markets reacted smoothly to the UK budget and took encouragement from an upward revision to the composite PMI, helping GBP/USD climb toward multi-week highs. Short-covering after a long period of bearish positioning added further momentum and kept the pound supported even as UK growth indicators signalled only modest economic resilience. Against the Canadian dollar, GBP/CAD held near the upper end of its recent range, reflecting mild sterling outperformance while the loonie paused after its earlier rally. With inflation still running above target and growth sluggish, the pound’s direction will hinge on how UK activity figures, labour-market trends, BoE communication, and global risk sentiment interact, particularly relative to policy expectations in the US and Canada.

The Japanese yen strengthened slightly last week as markets increasingly positioned for a Bank of Japan rate hike, with expectations firming that policymakers may lift the policy rate for the first time in months. Anticipation of tighter monetary policy helped narrow Japan’s yield gap with major economies and supported a notable pullback in USD/JPY, its strongest weekly performance since late September. Higher Japanese government bond yields added underlying strength. Still, the yen’s gains remain vulnerable: shifts in global risk appetite, fluctuations in US yields, or any softening in BoJ guidance could quickly alter momentum. As the BoJ meeting approaches, markets will be watching policy signals, domestic inflation and wage trends, and broader risk sentiment to gauge whether last week’s yen rebound has room to extend.

The Swiss franc held firm last week, supported by expectations that the SNB will avoid cutting rates even as inflation softens. That policy stance, combined with CHF’s longstanding safe-haven appeal, kept the currency resilient and pressured USD/CHF back toward its familiar support zone. EUR/CHF, meanwhile, remained broadly steady, reflecting a balanced dynamic between Swiss stability and gradual EU improvement. Persistent global uncertainty continued to draw investors toward the franc as a defensive asset. Still, CHF strength remains a double-edged sword: while it benefits investors, it weighs on Swiss exporters and could shape future SNB communication if competitiveness concerns intensify. Looking ahead, the franc’s path will hinge on Fed policy shifts, SNB guidance, fluctuations in global risk appetite, and broader eurozone developments impacting EUR/CHF.

The Chinese yuan firmed modestly last week, with USD/CNY drifting lower as broader dollar softness and steady capital inflows helped support the currency. The yuan’s appreciation is part of a gradual strengthening trend seen throughout 2025, although its performance has been more uneven against a wider basket of trade-partner currencies. State-owned banks were reported to have intervened to manage the pace of CNY gains, underscoring policymakers’ preference for controlled appreciation that avoids putting undue pressure on exporters. While the yuan remains broadly resilient, its trajectory still depends heavily on shifts in US interest-rate expectations, domestic economic signals, and Chinese authorities’ use of the daily fixing to guide market sentiment. Looking ahead, upcoming trade data, capital-flow trends, and global risk appetite will be key in determining whether last week’s mild yuan strength remains durable.

The Indian rupee weakened sharply last week, with USD/INR pushing record lows as persistent foreign-portfolio outflows and elevated import costs weighed heavily. Despite underlying resilience in the broader economy, investor confidence faltered amid uncertainty surrounding a potential trade deal with the US, amplifying concerns about declining FX inflows. The RBI’s recent 25 bps cut, delivered against a backdrop of easing inflation, further narrowed interest-rate differentials and added to downward pressure on the currency. As a result, the rupee has become one of Asia’s worst performers this year, underlining the scale of external pressures it faces. Looking ahead, INR stability will depend on whether capital flows improve, the global dollar tone softens, commodity prices ease, and whether policymakers choose to intervene more forcefully to limit volatility.

The Australian dollar strengthened last week, with AUD/USD climbing as the currency continued its steady rebound against the softer US dollar. The move added to a broader trend of resilience, supported by expectations that the RBA will hold rates steady amid still-elevated inflation and a firm labour market. Global risk sentiment also improved, with investors favouring commodity-linked currencies like the AUD as Fed rate-cut expectations weighed on the greenback. Technically, AUD/USD broke out of a recent downward wedge, reinforcing the bullish tone even as it approached a key resistance zone. Looking ahead, the outlook for the Aussie will hinge on RBA communication, the direction of US yields, and broader shifts in risk appetite and commodity demand.

The New Zealand dollar strengthened last week as markets grew more confident that the RBNZ has ended its rate-cutting cycle, shifting the narrative toward policy stability. That shift helped propel NZD/USD to fresh monthly highs, aided by a lift in domestic sentiment following stronger-than-expected retail-sales data. Although New Zealand’s economic recovery remains modest, signs of stabilization have encouraged investors to reassess the currency’s outlook. Broader global dynamics, particularly a softer US dollar on rising Fed-cut expectations, also helped underpin NZD gains. Looking ahead, the kiwi’s trajectory will depend on RBNZ communication, domestic data, global risk appetite, and the direction of USD moves, all of which will determine whether last week’s momentum can extend further.

The Mexican peso firmed last week as USD/MXN moved lower, extending a broader trend of appreciation that has defined much of 2025. Strong carry appeal, supported by Mexico’s relatively high interest rates, continued to draw investors toward MXN, while periods of broader USD softness further amplified gains. The peso’s recovery from earlier-year weakness has been notable, with MXN outperforming several emerging-market peers. Even so, underlying risks remain: external pressures, shifting global risk sentiment, and macroeconomic uncertainties could still inject volatility. Looking ahead, MXN’s direction will hinge on USD movements, yield differentials, Banxico communication, domestic economic signals, and broader emerging-market risk appetite.