Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar remained under broad pressure through the final stretch of the year, ending the week slightly weaker and largely range-bound as markets continued to price in a dovish Federal Reserve outlook. With recent rate cuts already absorbed and expectations building for further easing next year, the dollar lacked fresh catalysts for a sustained rebound. Thin holiday liquidity around Christmas kept trading conditions subdued, amplifying short-term noise rather than driving a clear trend. At the same time, firmer equity markets and a generally risk-on tone reduced demand for the dollar’s safe-haven appeal. While selective regional FX flows supported the USD against some emerging-market currencies, these moves were not enough to alter the broader picture. Overall, USD performance reflected year-end consolidation, with downside bias persisting as policy expectations and global rate convergence continued to weigh on the currency.

The Canadian dollar strengthened over the past week, with USD/CAD trending lower as the loonie benefited from a softer US dollar backdrop and firmer commodity support. After starting the week closer to the upper end of its recent range, the pair steadily declined, allowing CAD to reach its strongest levels in several months by mid to late week. Gains were underpinned by broad USD weakness tied to dovish Federal Reserve expectations, alongside higher oil prices that improved sentiment toward Canada’s export-heavy economy. While domestic data sent mixed signals, external drivers dominated price action, and thin holiday liquidity helped keep moves orderly rather than volatile. Overall, the balance of softer USD dynamics and supportive commodity flows left the Canadian dollar firmly in control through the week.

The euro strengthened modestly over the past week, holding near multi-week highs as EUR/USD posted a small but steady gain in thin year-end trading. The pair remained well supported throughout the holiday period, reflecting ongoing US dollar softness as markets continued to price a dovish Fed path and reduced demand for safe-haven USD exposure. With no major ECB surprises and EU data broadly stable, the single currency was able to maintain its footing, benefiting from supportive risk sentiment and year-end positioning. Low liquidity around Christmas kept volatility muted, resulting in range-bound but resilient price action. Overall, the euro finished the week slightly stronger, with momentum intact heading into early January as traders look to incoming US data and the return of fuller market participation.

Sterling strengthened modestly over the past week, with GBP/USD rising to multi-week highs before consolidating near the upper end of its range in quiet holiday trading. The pound benefited primarily from broad USD softness as markets continued to price the prospect of further Fed easing, allowing GBP to climb toward its strongest levels in several months. Support also came from the policy backdrop at the Bank of England, where expectations for aggressive follow-up cuts have been tempered. With UK data offering no major negative surprises and liquidity thin around Christmas, price action remained orderly rather than volatile. Overall, GBP finished the week slightly firmer, with near-term direction likely to hinge on US dollar dynamics incoming UK data, and the return of fuller market participation in early January.

The Japanese yen weakened over the past week, with JPY edging lower in thin holiday trading as the dollar maintained the upper hand. The yen continued to trade with a downward bias, reflecting ongoing rate differentials and the market’s view that Japan’s policy normalization will remain gradual. Although the Bank of Japan’s earlier rate hike had been absorbed by markets, cautious guidance and limited follow-through dampened expectations for sustained yen support. With liquidity reduced around Christmas, volatility stayed muted and price action remained range-bound, but the underlying direction still favoured USD strength over JPY. Looking ahead, the yen’s near-term outlook will hinge on shifts in US dollar momentum, BoJ communication around future tightening, and any changes in risk sentiment.

The Swiss franc outperformed over the past week, continuing to draw steady demand as USD/CHF drifted lower and briefly touched its weakest levels in around three months before stabilizing near the end of the period. The move reflected a combination of broad USD softness and CHF’s defensive appeal during thin year-end trading conditions. As markets leaned further into expectations of future Fed easing, selling pressure on the greenback persisted, allowing the franc to hold firm. The Swiss National Bank’s steady policy stance, with no indication of renewed easing, reinforced confidence in CHF stability and limited downside risks. Overall, price action pointed to consolidation near recent lows rather than a reversal, leaving the franc well supported as the year draws to a close and positioning shifts into early January.

The Chinese yuan edged firmer over the past week, gaining ground against the US dollar as USD/CNY drifted lower in quiet, holiday-thinned trading. The move reflected a mix of broad USD softness and steady support for the yuan from seasonal year-end flows, including exporter repatriation of foreign earnings. Official reference rates from the PBoC also pointed to tolerance for a slightly stronger currency, reinforcing a managed but supportive backdrop for CNY. With volatility subdued, price action remained orderly rather than aggressive, but the bias stayed tilted toward modest yuan appreciation. Looking ahead, the yuan’s near-term direction will depend on whether US dollar weakness persists, how Chinese authorities continue to guide daily fixings, and whether post-holiday liquidity brings renewed momentum.

The Indian rupee traded in a narrow, subdued range over the past week, ending slightly weaker against the USD amid thin holiday liquidity and steady underlying dollar demand. While global FX markets saw pockets of USD softness, INR failed to benefit meaningfully as routine corporate buying, importer demand, and pressure from the offshore NDF market kept USD/INR supported. Intraday moves were modest and quickly faded, with state-run bank activity helping to cap sharper declines but not generating a sustained rebound. Liquidity measures announced by the Reserve Bank of India helped stabilize domestic funding conditions, yet their impact on the currency remained limited in the face of persistent flow-driven pressures. Overall, price action reflected stability rather than strength, leaving the rupee marginally softer on the week and still constrained by structural demand for dollars.

The Australian dollar extended its advance over the holiday-shortened week, strengthening against the US dollar as AUD/USD pushed to fresh multi-month highs in thin year-end trading. The move was driven primarily by broad USD softness as markets continued to price Fed easing, allowing risk-sensitive and commodity-linked currencies like the Aussie to outperform. Supportive seasonal dynamics and improved risk appetite also helped reinforce upside momentum, while expectations of policy divergence, with the RBA seen as less inclined to cut aggressively compared with the Fed, underpinned sentiment. With limited liquidity around Christmas, price action was smooth rather than volatile, and gains were largely uncontested. Overall, the week reinforced a constructive tone for AUD, leaving it well supported heading into the final trading days of the year as long as USD weakness and risk-friendly conditions persist.

The New Zealand dollar held up well over the holiday-shortened week, posting modest gains against the US dollar and remaining near the upper end of its recent trading range. NZD/USD benefited from continued softness in the greenback as year-end positioning and dovish Federal Reserve expectations weighed on USD demand across FX markets. With no major domestic surprises and limited liquidity around Christmas, price action was orderly and largely driven by broader trends rather than local catalysts. Technical support remained firm, allowing the kiwi to retain most of its earlier advances and trade comfortably near multi-week levels. Overall, NZD sentiment stayed constructive through the week, with the currency likely to remain sensitive to shifts in US dollar momentum and risk appetite as markets transition into early January.

The Mexican peso strengthened modestly over the past week, extending its constructive tone as USD/MXN drifted lower in steady, low-volatility trading. The move reflected broad USD softness into year-end and continued support from carry-trade dynamics, with Mexico’s relatively attractive yield environment helping to anchor demand for MXN even after Banxico’s recent rate cut. Holiday-thinned liquidity kept price action orderly rather than aggressive, but the bias consistently favoured peso strength, allowing USD/MXN to test lower levels late in the week. In a broader context, the peso remains one of the stronger emerging-market currencies, and last week’s performance reinforced that resilience. Looking ahead, MXN direction will depend on US dollar momentum, global risk appetite, and how markets reassess Banxico’s easing path as liquidity returns in early January.