Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar remained firmly supported through the week as investors continued to favour safe-haven assets amid escalating tensions in the Middle East and renewed concerns over global energy supply disruptions. Stronger US consumer spending figures and persistent inflation signals reinforced the view that the Federal Reserve may keep interest rates elevated for longer, prompting markets to scale back expectations for near-term policy easing. The combination of geopolitical uncertainty and resilient domestic data allowed the greenback to hold gains against most major currencies through the period. Looking ahead, markets will remain focused on incoming inflation readings, Federal Reserve communication and geopolitical developments that continue to shape global risk sentiment.

The Canadian dollar experienced a volatile week as competing forces pulled the currency in opposite directions. Early in the period, the loonie drew meaningful support from rising crude oil prices as the geopolitical conflict pushed energy markets sharply higher, reinforcing Canada's commodity-linked advantage. However, that support faded after a weaker-than-expected Canadian labour report raised concerns about domestic economic momentum and triggered a broader pullback in the currency. As a result, the Canadian dollar softened against several peers by the end of the week, even as elevated oil prices continued to provide an underlying cushion. In the sessions ahead, markets will focus on upcoming Canadian inflation data, global energy price movements and broader US macro developments.

The euro remained under pressure as rising energy prices continued to cloud the eurozone’s economic outlook. Surging oil prices revived concerns about imported inflation across the region, while weak German industrial data reinforced the perception that Europe entered the latest shock from an already fragile economic position. With limited fresh policy guidance from the European Central Bank and persistent global dollar strength, the single currency struggled to generate sustained momentum. Against commodity-linked currencies such as the Canadian dollar, the euro also faced additional pressure as higher energy prices disproportionately benefited resource-exporting economies.

Sterling endured another challenging week as the UK economy remained particularly exposed to rising global energy costs. The pound was pressured after economic data suggested the UK economy had stalled earlier in the year, raising concerns that growth could weaken further as higher energy prices filter through the economy. Although markets have begun reassessing the Bank of England’s policy outlook amid persistent inflation risks, the currency struggled to gain traction as investors continued to favour the relative stability of the US dollar. Against the Canadian dollar, sterling also faced pressure as the loonie benefited from stronger oil prices.

The Japanese yen remained under pressure as the latest surge in global oil prices highlighted Japan’s vulnerability as a major energy importer. While geopolitical tensions typically support safe-haven currencies, the yen struggled to attract sustained demand as strong US dollar flows dominated global markets. Comments from Bank of Japan officials suggesting that any future tightening would remain gradual also limited support for the currency. As a result, the yen weakened against several major peers during the week, particularly commodity-linked currencies that benefited directly from rising energy prices.

The Swiss franc remained relatively well supported as investors continued to favour traditional safe-haven assets amid persistent geopolitical uncertainty. Defensive capital flows into Switzerland helped the currency maintain a firm tone through much of the week. However, gains were somewhat contained after earlier warnings from the Swiss National Bank about excessive franc strength, which raised expectations that policymakers could intervene if appreciation becomes too rapid. As a result, the franc strengthened modestly overall but avoided the sharper moves often seen during periods of heightened global stress.

The Chinese yuan traded with a softer bias as broad US dollar strength and continued uncertainty in global markets weighed on sentiment toward emerging market currencies. Domestic data provided limited reassurance after credit growth slowed more than expected, highlighting ongoing weakness in demand across parts of the Chinese economy. Although authorities continued to guide the currency through stable daily midpoint settings, the yuan struggled to resist the combination of stronger dollar demand and a cautious global risk environment.

The Indian rupee remained under pressure as the surge in global oil prices revived concerns about India’s external balance and inflation outlook. As a major importer of crude oil, India’s economy is particularly sensitive to energy shocks, and the currency weakened as investors assessed the potential impact on trade balances and domestic inflation. The Reserve Bank of India was widely seen smoothing volatility in the currency market to prevent disorderly moves, but broader sentiment remained cautious. Against the Canadian dollar, the rupee struggled to hold ground as higher oil prices supported the commodity-linked loonie.

The Australian dollar experienced a choppy week as markets balanced rising inflation expectations against a cautious global risk backdrop. Higher oil prices pushed inflation expectations higher in Australia and reinforced speculation that the Reserve Bank of Australia could maintain a relatively firm policy stance. That prospect offered intermittent support to the currency, although broader risk aversion limited the scope for a sustained rally. As a commodity-linked currency, the Australian dollar held relatively steady overall but still struggled to keep pace with the stronger Canadian dollar as crude prices surged.

The New Zealand dollar traded with a cautious tone as global risk sentiment fluctuated throughout the week. As a high-beta currency, the kiwi remained particularly sensitive to swings in investor appetite and tended to weaken during periods of heightened geopolitical tension before stabilising as sentiment improved. With limited domestic catalysts during the week, the currency largely took its direction from broader global market movements and shifts in commodity currency performance.

The Mexican peso remained relatively steady compared with several other emerging market currencies, supported by still-elevated domestic inflation and a relatively high interest rate environment that continues to attract yield-focused investors. Even so, the currency faced headwinds from stronger US dollar demand and a cautious global risk backdrop. While higher oil prices offered some indirect support given Mexico’s energy exports, the broader preference for safe-haven assets limited upside for the peso through the period.