Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar staged a modest recovery during the week of February 16–20, with the Dollar Index (DXY) climbing from the mid-96s to briefly test the 98.00 area before easing slightly into Friday. Mid-week gains were underpinned by a combination of geopolitical tensions, resilient US macro data including firmer housing and production figures, and lingering inflation concerns that reinforced safe-haven demand and steady Federal Reserve expectations. However, the rally lost some momentum at week’s end after the US Supreme Court struck down former President Trump’s tariffs, triggering a surge in equities and softening defensive dollar flows as investors reassessed policy and fiscal implications. While sentiment among fund managers remains broadly bearish on the dollar longer term, near-term direction will hinge on incoming data, alongside shifts in global risk appetite and geopolitical developments.

The Canadian dollar edged modestly lower against the USD over the latest trading stretch, as broader greenback strength and cautious global sentiment limited upside momentum for the loonie. While domestic fundamentals remained relatively steady, with the exception of softening inflation, and oil prices were broadly stable, the absence of a stronger crude rally reduced a key source of support for CAD. Mid-period US data resilience and geopolitical undercurrents reinforced demand for the dollar, weighing on CAD performance. A shift in market sentiment following the US Supreme Court’s tariff ruling also contributed to cross-asset repositioning that offered little sustained relief for the loonie. Although futures positioning suggested growing constructive interest in the Canadian dollar, spot action reflected only mild softness. Going forward, CAD direction will depend on incoming economic data, energy price dynamics and the broader trajectory of US macro conditions.

The euro drifted modestly lower over the latest trading stretch, with EUR/USD moving within a relatively tight range before ending slightly softer overall. Early attempts to stabilize were overshadowed mid-period by renewed USD strength, as firmer American macro signals and geopolitical undertones supported the greenback. At the same time, commentary from ECB officials pointing to renewed disinflationary pressures and cautious policy expectations tempered enthusiasm for the single currency. Although risk sentiment improved toward the end of the week following the US Supreme Court’s tariff decision, the dollar’s pullback was limited, preventing a stronger euro rebound. Positioning dynamics near recent highs also contributed to the pair’s inability to sustain upside momentum. Looking ahead, the euro’s trajectory will hinge on incoming euro area inflation data, ECB guidance, and the global risk appetite.

The British pound softened notably against the major currencies over the week, with sterling trending lower as markets increasingly priced in a more dovish BoE outlook. Weaker labour market signals, easing wage pressures and softer inflation data reinforced expectations of near-term rate cuts, weighing on GBP sentiment despite pockets of resilience in retail sales and select fiscal indicators. The broader macro mix left investors cautious, limiting appetite to rebuild long sterling positions. At the same time, renewed mid-week strength in the USD amplified downside pressure on GBP, pushing it toward multi-week lows. Looking ahead, sterling’s direction will depend heavily on incoming UK data, as well as further guidance from the Bank of England, while shifts in US economic momentum and Federal Reserve expectations will remain key external drivers.

The Japanese yen softened this week, with USD/JPY grinding higher as renewed dollar demand and shifting global sentiment weighed on the currency. After a strong rally in the prior period, the yen faced profit-taking flows, limiting its ability to extend gains. Broader US dollar resilience, supported by firm macro signals, further pressured the pair higher. Meanwhile, the Bank of Japan’s policy stance remained widely viewed as steady and accommodative, offering little catalyst for renewed yen strength in the near term. In a backdrop where risk appetite improved at times, traditional safe-haven demand for the yen was subdued. Looking ahead, direction will hinge on Bank of Japan communication, US data and Federal Reserve expectations, as well as any shifts in global risk dynamics that could revive defensive flows into the currency.

The Swiss franc lost modest ground as the US dollar firmed through the period, with USD/CHF gradually pushing higher. Demand for the greenback, supported by steady US macro signals and positioning flows, outweighed the franc’s traditional safe-haven appeal. Although global risk conditions were mixed, they failed to generate sustained defensive inflows into CHF, leaving it vulnerable to broader dollar momentum. The move also unfolded against a backdrop of an already-strong franc in recent months, which helped keep volatility contained rather than triggering a sharper reversal. With no fresh policy signals from the Swiss National Bank, markets remained focused on external drivers, particularly US data and Federal Reserve expectations. Going forward, shifts in global risk appetite and any SNB commentary on currency strength will be key for franc direction.

The Chinese yuan held broadly steady with a slight firming bias, as USD/CNY remained confined to a narrow range and drifted marginally lower overall. Currency volatility was subdued, reflecting balanced dollar movements and continued guidance from the People’s Bank of China through its daily fixing. Supportive regional positioning and constructive sentiment toward emerging Asian currencies helped underpin the renminbi, while seasonal corporate FX flows, including exporter conversions, added a layer of underlying demand. With the dollar index relatively stable during the period, external pressures on the yuan were limited, resulting in contained price action. Looking ahead, attention will centre on PBOC policy signals, trade and capital flow trends, and the broader trajectory of US macro data and Federal Reserve expectations.

The Indian rupee slipped modestly as steady dollar demand and external pressures nudged USD/INR higher within a contained range. Early weakness was driven by foreign fund outflows and importer demand for dollars, while activity in non-deliverable forward markets reinforced upward pressure on the pair. At the same time, likely intervention signals from the Reserve Bank of India helped prevent sharper depreciation near key psychological levels, keeping moves orderly. Elevated crude oil prices amid renewed geopolitical tensions added another layer of strain, given India’s heavy reliance on energy imports. Overall, the rupee maintained a relatively narrow trading band but with a mild weakening bias. Looking ahead, direction will depend on US inflation trends and Federal Reserve expectations, RBI policy cues and reserve management, oil price dynamics and the trajectory of portfolio flows into Indian assets.

The Australian dollar edged modestly lower as firmer USD momentum trimmed earlier resilience in AUD/USD. The pair traded within a relatively tight band, with supportive commodity prices and steady domestic fundamentals helping anchor the currency near the 0.70 handle, even as broader greenback demand capped upside attempts. Risk sentiment remained an important driver, with equity strength and gains in the ASX 200 offering intermittent support, though not enough to offset renewed dollar traction into the close. Interest rate differentials and increased hedging activity from large Australian institutional investors also featured in the backdrop, reinforcing a view that the currency retains medium-term underpinning despite short-term softness. Looking ahead, direction will hinge on Reserve Bank of Australia guidance, US macro data and Federal Reserve expectations, alongside global risk appetite and incoming signals from China’s economic outlook.

The New Zealand dollar gave up modest ground as renewed USD demand and uneven risk sentiment nudged NZD/USD lower within a contained range. While the kiwi showed early stability, firmer greenback momentum mid-to-late period limited upside attempts and gradually pressured the pair toward the lower end of its recent band. The absence of major domestic economic surprises or fresh guidance from the Reserve Bank of New Zealand left the currency largely reactive to external drivers rather than home-grown catalysts. As a risk-sensitive unit, the NZD also felt the impact of patchy global sentiment, with softer risk appetite tending to favour the dollar. Cross-currency performance remained relatively stable, reinforcing the view that broader FX flows dominated price action. Looking ahead, attention will turn to RBNZ communication, US macro developments and Federal Reserve expectations, as well as shifts in global risk dynamics and China-linked demand signals.

The Mexican peso posted a modest advance as USD/MXN edged lower, supported by a softer tone in the US dollar and steady emerging-market inflows. Carry appeal remained a key pillar for the currency, with Mexico’s yield backdrop continuing to attract interest amid relatively stable risk conditions. Domestic fundamentals, including firm inflation dynamics and a steady policy stance from Banco de México, reinforced confidence in the peso’s resilience. Supportive commodity prices, particularly in energy markets, also helped underpin sentiment given Mexico’s export profile. While intermittent bouts of cautious risk appetite trimmed some gains, the overall bias favoured MXN strength. Looking ahead, the peso’s direction will depend on US macro momentum and Federal Reserve expectations, central bank guidance from Banxico, oil price trends and broader emerging-market capital flows.