Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar softened through most of the week as hopes for a more durable ceasefire in the Middle East improved risk appetite, oil prices fell sharply and markets rebuilt expectations for Federal Reserve rate cuts. The greenback lost some of its earlier war-driven support as traders judged that lower energy prices could ease inflation pressure and give the Fed more room later this year. By Friday, the dollar was under broad pressure against major peers as investors rotated back into risk-sensitive assets and higher-yielding alternatives. Next week, the focus will shift to US retail sales, Fed commentary and whether the ceasefire around the Strait of Hormuz continues to hold.

The Canadian dollar had a constructive week, supported by a weaker US dollar and an improvement in broader market sentiment as fears around a prolonged disruption to global shipping eased. The loonie rose to a one-month high by the end of the week, even though oil prices dropped sharply, as investors looked past the immediate commodity hit and responded instead to reduced geopolitical stress and a broader retreat in the greenback. Domestic data remained mixed, with housing starts falling and inflation expected to edge higher, but the overall tone for the currency improved. Next week, traders will watch Canadian inflation, any shift in Bank of Canada pricing and whether calmer geopolitics can keep the loonie supported.

The euro recovered ground as the broad retreat in the US dollar and improving risk appetite outweighed lingering concern about the euro area’s exposure to energy shocks. Even so, the underlying backdrop remained complicated, with ECB officials continuing to warn that the war still poses risks to both growth and inflation, while other policymakers argued there was no need to rush toward immediate tightening. That left the single currency firmer for the week, but still sensitive to how markets balance lower oil prices against a fragile regional outlook. Next week, euro traders will keep a close eye on ECB rhetoric, business activity signals and any renewed tension in the Middle East that could again hit Europe’s energy outlook.

Sterling strengthened over the week as the pound benefited from the broader decline in the US dollar and from a modest improvement in global risk sentiment. At the same time, concerns about the UK economy did not disappear, with policymakers and investors still wary of the inflationary impact of earlier energy spikes and the strain they could place on growth and public finances. That left sterling better supported than during the height of the oil shock, but still short of a clean fundamental recovery story. Next week, the pound is likely to be driven by UK inflation expectations, Bank of England commentary and any change in ceasefire conditions that alters the wider market mood.

The Japanese yen stabilised somewhat as the US dollar weakened, but the currency’s rebound remained restrained. Bank of Japan Governor Kazuo Ueda avoided giving markets a clear hint of an April rate hike, which cooled more hawkish expectations and limited the yen’s ability to fully capitalise on the softer dollar backdrop. Policymakers remain uncomfortable with yen weakness because of its effect on import costs, yet the market is still unsure whether the BOJ will move quickly enough to change the trend decisively. Next week, attention will centre on Japan’s inflation signals, intervention rhetoric and any further clues ahead of the Bank of Japan meeting on April 27–28.

The Swiss franc remained firm, though it did not dominate the week’s moves as improving market sentiment reduced the urgency of defensive positioning. The franc still benefited from residual caution around the ceasefire and the broader geopolitical backdrop, but its upside remained tempered by the Swiss National Bank’s willingness to lean against excessive appreciation. As a result, the currency stayed well supported without producing the kind of outsized safe-haven rally seen during more acute stress. Next week, the franc is likely to remain sensitive to shifts in war headlines and to any further SNB guidance on intervention.

The Chinese yuan strengthened modestly as broad US dollar weakness and improving risk sentiment offered support to Asian currencies. Beijing’s preference for stable trading conditions remained evident, while the calmer external backdrop helped reduce pressure on the renminbi after weeks in which geopolitics and energy-market disruption had favoured the dollar. Even so, the yuan’s gains stayed measured, reflecting a market that remains cautious about China’s domestic outlook and broader regional capital flows. Next week, traders will watch Chinese loan prime rate guidance, activity data and the external risk backdrop to judge whether the yuan can extend its firmer tone.

The Indian rupee found some relief as oil prices retreated and immediate fears around supply disruption eased, but the recovery was limited by continued importer hedging and the currency’s broader vulnerability to swings in energy markets. India remains highly exposed to oil volatility, so even a calmer week did not fully remove pressure on the rupee, especially with foreign flows still fragile. The currency therefore stabilised more than it convincingly rebounded. Next week, markets will look to RBI signals, PMI data and the direction of crude prices, with geopolitics still central to the rupee’s near-term outlook.

The Australian dollar had a stronger week as the pullback in the US dollar and better global sentiment encouraged renewed demand for risk-sensitive currencies. The Aussie benefited from the same mood shift that lifted equities and other cyclical assets, with the easing in energy stress reducing pressure on global growth expectations. Even so, the currency remained exposed to changes in external sentiment rather than purely domestic drivers. Next week, the Australian dollar will be especially sensitive to China-related data, commodity prices and any renewed instability in the Middle East that sends investors back toward the US dollar.

The New Zealand dollar also advanced as risk appetite improved and the US dollar weakened, though gains were kept in check by the Reserve Bank of New Zealand’s cautious stance and the economy’s still-fragile recovery profile. The kiwi moved with the broader rebound in higher-beta currencies, but it lacked the stronger domestic policy support that helped some peers. As a result, its recovery looked more sentiment-led than locally driven. Next week, traders will watch business confidence, global risk appetite and any fresh geopolitical headlines that could quickly reverse the week’s improvement in mood.

The Mexican peso firmed as the weaker US dollar and calmer global backdrop improved sentiment toward higher-yielding emerging-market currencies. The peso also benefited from Mexico’s relatively supportive carry profile, while reduced immediate stress in oil markets helped ease pressure on broader EM positioning. Still, gains remained tied closely to global risk conditions rather than any single domestic catalyst. Next week, the peso is likely to track US data, changes in global risk appetite and oil-market headlines, especially if the ceasefire narrative becomes less convincing.