Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar ended the week with renewed momentum as geopolitics swung back in its favour. Early hopes that the conflict in the Middle East might cool briefly took some heat out of the greenback, but that changed when Washington signalled a harder military line and investors moved back toward liquidity and safety. Support was reinforced by a much stronger-than-expected March payrolls report, which helped revive the view that the Federal Reserve can afford to stay patient on rate cuts even as the oil shock keeps inflation risks alive. Next week, the dollar’s direction is likely to hinge on US inflation data and whether any change in the Iran conflict alters the market’s demand for safe havens.

The Canadian dollar had a mixed week, with the loonie caught between its oil-linked support and broader concerns about growth. Canada’s currency remained better cushioned than many import-dependent peers because elevated crude prices continued to improve the country’s terms of trade, but gains were not straightforward as markets also worried that a prolonged energy shock could weigh on domestic activity. The loonie therefore moved in a more uneven fashion than the oil story alone would suggest. Next week, traders will watch Canadian employment and any further moves in crude, while the wider geopolitical backdrop will remain critical for risk appetite and commodity-linked currencies.

The euro remained under pressure for most of the week, though it managed brief respites when ceasefire hopes trimmed demand for the dollar. The bigger issue for the single currency was that fresh inflation readings confirmed the oil shock is feeding into prices just as the euro zone faces a more fragile growth outlook. That has left the euro pulled between rising expectations for ECB tightening and growing concern that Europe is especially exposed to higher imported energy costs. Next week, traders will keep a close eye on how ECB expectations evolve, but the euro is still likely to take its main cues from energy markets and any sign of escalation or de-escalation in the Middle East.

Sterling struggled to hold its ground as the week progressed, with the pound once again exposed to the UK’s sensitivity to imported energy and to shifting expectations around growth and inflation. While markets have continued to lean toward a firmer Bank of England stance as energy-driven inflation risks build, that support was offset by the broader appeal of the US dollar and by unease over the strain that higher energy prices could place on households, public finances and business activity. Next week, sterling will be sensitive to incoming UK data and policy expectations, but geopolitics and the oil price will remain the bigger near-term drivers.

The Japanese yen remained under notable pressure, as the latest leg higher in oil prices again highlighted Japan’s vulnerability as a major energy importer. Officials sharpened their rhetoric on excessive currency moves and the Bank of Japan continued to leave the door open to further tightening, but that was not enough to offset the combination of strong dollar demand and concern over the economic hit from higher fuel costs. The yen therefore continued to trade more like an energy-shock casualty than a classic haven. Next week, markets will watch for any stronger intervention signals from Tokyo and continue to assess whether the Bank of Japan edges closer to action as the inflation impact of oil and yen weakness builds.

The Swiss franc stayed relatively firm but did not dominate the safe-haven trade in the way it sometimes does during acute geopolitical stress. The franc still benefited from defensive demand, yet its upside was repeatedly tempered by the Swiss National Bank’s clear discomfort with excessive appreciation and its readiness to intervene if needed. That left the currency supported, but with traders wary of pushing it too far too quickly. Next week, the franc is likely to stay highly sensitive to changes in war headlines, while any fresh SNB language on intervention could also shape sentiment.

The Chinese yuan traded with a softer bias overall, even as domestic activity data offered some evidence of resilience. Official and private PMI readings pointed to a manufacturing recovery in March, but that was accompanied by intensifying price pressures and lingering concern over how the energy shock and supply-chain disruption could affect demand, margins and confidence. The yuan also remained weighed down by broad dollar strength and Beijing’s continued preference for exchange-rate stability rather than aggressive moves. Next week, markets will be watching Chinese inflation data and any signals from policymakers, though external risk sentiment and the oil backdrop are still likely to dominate.

The Indian rupee remained one of the clearest casualties of the week’s energy-driven stress, sliding to record lows before policy action helped stabilise it. India’s dependence on imported crude left the currency under heavy pressure as oil surged, while foreign outflows and persistent dollar demand compounded the move. The authorities responded with increasingly forceful market measures, which helped ease some immediate pressure, but the broader backdrop for the rupee remained fragile. Next week, the Reserve Bank of India’s policy decision, guidance on liquidity and currency management, and the path of oil prices will be central for rupee traders.

The Australian dollar stayed under pressure for much of the week, behaving less like a pure commodity currency and more like a risk-sensitive one. Even with the Reserve Bank of Australia still sounding uncertain rather than dovish after its March hike, the Aussie struggled against the stronger US dollar as geopolitics dominated and investors pulled back from cyclical assets. The currency’s weakness also reflected a market that is still trying to judge whether Australia’s yield support can outweigh the drag from global risk aversion. Next week, sentiment toward the Aussie is likely to be driven by China-related data, oil and broader risk appetite, while markets continue to debate how much further the RBA may need to go.

The New Zealand dollar remained vulnerable, with the kiwi continuing to trade like a high-beta currency in a market dominated by geopolitics and defensive flows. Unlike the Australian dollar, it lacked a strong domestic support story during the week, leaving it more exposed to the broad move into the US dollar and to ongoing concerns about New Zealand’s fragile recovery and fiscal outlook. Next week, the Reserve Bank of New Zealand meeting will be the key domestic event, but the kiwi is still likely to take most of its direction from global risk sentiment and any shift in Middle East tensions.

The Mexican peso was steadier than some emerging-market peers, but it still struggled to fully escape the stronger-dollar environment. Mexico’s oil-producer status offered some offset to the broader energy shock, and the view that the Bank of Mexico is nearing the end of its easing cycle helped keep the peso from weakening more sharply. Even so, the broader tightening in global financial conditions and reduced appetite for risk limited upside. Next week, the peso is likely to stay sensitive to US inflation, global risk mood and oil prices, especially if the conflict again drives a fresh flight into the dollar.