Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar traded in a choppy, directionless fashion over the past week as markets weighed dovish Federal Reserve policy expectations against incoming economic signals. While the DXY saw brief intraday upticks, gains proved difficult to sustain as the Fed’s recent rate cut continued to cap upside momentum and reinforce a softer underlying bias. Periodic rebounds reflected position adjustments and pockets of USD demand, particularly against JPY, CAD, and some emerging-market currencies, but overall sentiment remained cautious. Softer inflation trends and expectations that US policy will stay accommodative reduced the dollar’s appeal, especially as global risk appetite improved and investors rotated toward equities and higher-yielding currencies. As a result, the greenback underperformed against major peers, leaving the USD largely range-bound and sensitive to shifts in data, positioning, and broader risk sentiment.

The Canadian dollar strengthened further over the past week, extending its rally against the US dollar as USD/CAD drifted toward multi-month lows near the mid-1.37 area. The loonie marked a third consecutive weekly gain, supported by softer US economic data, growing expectations of additional Fed cuts, and a clear contrast with the Bank of Canada’s policy stance. Improving domestic indicators, including signs of resilience in wholesale activity and construction-related data, reinforced confidence that Canada’s economy is holding up better than feared. With USD momentum subdued and policy divergence working in CAD’s favour, the loonie remained well supported through the week. Looking ahead, CAD direction will hinge on upcoming US inflation data, Canadian retail sales, BoC communication, and moves in oil prices, with continued USD softness likely to keep the bias constructive but vulnerable to shifts in risk mood.

The euro strengthened overall during the past week, with EUR/USD holding firm near multi-week highs as broad US dollar weakness continued to underpin the pair. After pushing toward the upper end of its recent range mid-week, the euro eased slightly but remained well supported above key levels, reflecting steady demand. Sentiment toward the single currency was helped by the European Central Bank’s decision to keep rates unchanged and strike a more optimistic tone on the EU outlook, which helped counterbalance any lingering growth concerns. With no major negative surprises from EU data and markets increasingly pricing in future Fed rate cuts, momentum stayed tilted in favour of the euro. Looking ahead, EUR direction will hinge on incoming US data, shifts in Fed expectations, and ECB communication, with continued dollar softness likely to keep the euro supported.

Sterling traded in a relatively steady but choppy fashion over the past week, holding modest gains against the US dollar as GBP/USD remained anchored in the mid-1.33 to 1.34 range. Early strength was driven by softer US data that weakened the dollar and briefly pushed the pair toward the top of its recent range, but momentum faded as domestic factors weighed on sentiment. A sharper-than-expected drop in UK inflation reinforced expectations of further easing from the Bank of England, and while the BoE’s widely anticipated rate cut initially had a limited impact, it kept investors cautious about sterling’s upside. As a result, GBP/USD finished the week little changed overall, supported by USD softness but capped by concerns over the UK growth and policy outlook. Looking ahead, sterling’s direction will depend on how markets reassess the BoE’s forward guidance, incoming UK data, and broader US dollar moves, with near-term trading likely to remain range-bound.

The Japanese yen weakened over the past week, with USD/JPY moving higher and ending near the upper end of its recent range. Although the Bank of Japan delivered a long-anticipated rate hike, markets judged the move as less hawkish than hoped, focusing instead on cautious guidance and the view that policy normalization will proceed slowly. That perception encouraged carry trades and reinforced the impact of still-wide rate differentials in favour of the US, leaving JPY under pressure. Structural factors, including fiscal concerns and Japan’s low real yields, continued to weigh on sentiment, keeping the yen among the weaker major currencies. Looking ahead, the yen’s direction will depend on how clearly the BoJ signals further tightening, shifts in US dollar momentum and Fed expectations, and changes in global risk appetite that could either revive safe-haven demand or extend carry-driven weakness.

The Swiss franc strengthened modestly over the past week, benefiting from broad US dollar softness and its continued appeal as a defensive currency. USD/CHF drifted lower and held near the lower end of recent ranges, reflecting steady demand for CHF as softer US inflation data and dovish Fed expectations weighed on the dollar. The Swiss National Bank’s decision to keep policy unchanged reinforced perceptions of stability, signalling comfort with current franc levels as inflation and growth remain balanced. Support also came from Switzerland’s widening trade surplus, which underlined solid external fundamentals and helped anchor CHF sentiment. Overall, the franc remained resilient through the week, supported by safe-haven demand and subdued USD momentum, while gains stayed measured in the absence of fresh policy shocks.

The Chinese yuan traded with steady strength over the past week, holding firm against the US dollar as USD/CNY moved in a tight and controlled range. The pair edged slightly lower overall, signalling modest yuan appreciation, while limited volatility reflected ongoing currency management by authorities. Daily reference rates set by the People’s Bank of China stayed close to recent levels, reinforcing a message of stability rather than aggressive directional moves. In a broader context, the yuan has continued to build on gains seen earlier in the month and year, supported by external demand and a relatively stable policy backdrop. Looking ahead, the currency’s near-term direction will hinge on US dollar dynamics, incoming Chinese economic data, and how the PBoC balances growth concerns with its preference for orderly, managed exchange-rate movements.

The Indian rupee experienced a volatile week, weakening sharply early on before staging a modest rebound toward the end. Heavy hedging demand, persistent foreign portfolio outflows, and uncertainty around US–India trade negotiations pushed USD/INR to fresh record lows above the 91 mark, underscoring intense pressure on the currency. As the week progressed, intervention by the Reserve Bank of India helped stabilize conditions and allowed the rupee to claw back some losses. Despite that late recovery, overall sentiment toward INR remained fragile, and the currency continues to rank among the weakest performers in Asia this year. Looking ahead, rupee direction will depend on the scale of RBI support, developments in trade talks, capital-flow trends, and broader US dollar dynamics, with volatility likely to remain elevated.

The Australian dollar strengthened over the past week, with AUD/USD posting solid gains as the currency benefited from a softer US dollar backdrop and improved global risk sentiment. The move was supported by renewed expectations that the Federal Reserve will remain cautious after softer US inflation data, reducing USD demand and lifting risk-sensitive currencies. Domestic factors also played a key role, with the Reserve Bank of Australia holding rates steady and maintaining a neutral to slightly hawkish tone. Rising commodity prices, particularly in key Australian exports like metals and energy, further underpinned AUD sentiment. Looking ahead, the Aussie’s momentum will depend on incoming US data, RBA guidance, domestic economic releases, and shifts in global risk appetite, with the balance of risks still favouring support so long as USD softness and commodity demand persist.

The New Zealand dollar weakened over the past week, with NZD/USD drifting lower as early gains gave way to renewed US dollar strength. After briefly pushing toward the upper end of its recent range mid-week on risk-on sentiment and softer USD dynamics, the kiwi lost momentum as stronger US labour data revived demand for the dollar and capped upside. Despite some supportive domestic signals, including pockets of firmer economic data, markets remained cautious about NZD’s ability to sustain a recovery, given its tendency to underperform when USD momentum improves. As a result, NZD finished the week modestly lower, reinforcing the view that the kiwi remains vulnerable to shifts in US data, Fed expectations, and global risk sentiment, with upside still constrained unless broader dollar weakness re-emerges.

The Mexican peso held firm over the past week, showing modest strength and notable stability against the US dollar. The peso benefited from broad US dollar softness and a supportive risk environment, allowing the pair to hover near the psychologically important 18.00 level after briefly testing lower levels. This resilience reinforced the peso’s reputation as one of the stronger emerging-market currencies in 2025, even as Mexico’s central bank continued its cautious easing cycle. While Banxico’s recent rate cut has reduced some of the peso’s carry appeal, steady inflation signals helped limit downside pressure. Looking ahead, MXN performance will hinge on USD direction, Banxico communication, domestic inflation data, and shifts in global risk sentiment, with the peso likely to remain well supported as long as USD softness persists.