Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar weakened sharply through the week as safe-haven demand faded after a tentative Middle East ceasefire improved market sentiment and reduced immediate fears around global energy supply disruption. That softer geopolitical backdrop was reinforced by a weaker-than-expected March inflation print, which revived expectations that the Federal Reserve could begin easing policy later this year. The greenback therefore lost ground against most major currencies, marking its sharpest weekly retreat in several months. Next week, the dollar’s direction will depend on whether ceasefire talks hold and on incoming US retail sales, consumer sentiment and Federal Reserve commentary.

The Canadian dollar enjoyed a stronger week as improved global sentiment and easing demand for the US dollar helped the loonie recover lost ground. Canada’s currency also benefited from resilient oil prices, even as markets reassessed the severity of the earlier energy shock. Domestic attention turned to Canada’s labour market, where a rebound in employment helped steady confidence after February’s weakness. The loonie therefore outperformed several peers as risk appetite improved. Next week, traders will focus on Canadian inflation data, crude price direction and whether geopolitical calm proves durable enough to sustain demand for commodity-linked currencies.

The euro advanced through the week as the retreat in the US dollar and improving risk appetite outweighed lingering concerns over Europe’s exposure to elevated energy costs. Softer US inflation encouraged investors to rotate back into major alternatives to the greenback, while expectations that the European Central Bank may need to stay cautious but vigilant on inflation also offered support. The single currency therefore posted a broad rebound after several difficult weeks. Next week, euro traders will watch ECB communication, euro area inflation expectations and any shift in Middle East tensions that could again pressure Europe’s growth outlook.

Sterling strengthened as the week progressed, benefiting from the broad dollar pullback and firmer risk sentiment. The pound was also supported by expectations that the Bank of England may need to remain cautious on easing if higher energy prices continue to feed through to inflation. While the UK still faces growth challenges and sensitivity to imported fuel costs, the market focus this week was more squarely on the weaker dollar story. Next week, sterling will be guided by UK inflation and labour-market expectations, alongside broader swings in geopolitics and global risk appetite.

The Japanese yen stabilised and recovered modestly as the dollar weakened, although the currency’s gains remained less dramatic than those of some peers. Lower global oil prices and calmer markets eased one of the key headwinds facing Japan’s import-dependent economy, while a softer dollar helped relieve pressure built up during the prior risk-off phase. Even so, markets remained cautious about chasing the yen aggressively given uncertainty around the Bank of Japan’s pace of tightening. Next week, traders will watch Japanese inflation signals, official rhetoric and whether the ceasefire materially changes global yield dynamics.

The Swiss franc remained firm but underperformed some higher-beta currencies as the market mood improved. The franc still retained support from residual caution around the ceasefire’s durability, yet investors rotated toward riskier assets as immediate geopolitical fears eased. That shift limited further upside for the currency after its strong defensive run. Next week, the franc is likely to remain sensitive to any renewed geopolitical stress, while comments from the Swiss National Bank on intervention or excessive appreciation could also influence sentiment.

The Chinese yuan strengthened modestly as broad US dollar weakness and improving market sentiment provided a more supportive backdrop for Asian currencies. Domestic inflation pressures and signs of stabilisation in activity data also helped confidence, while authorities continued to favour orderly currency conditions. The yuan therefore benefited more from the softer external environment than from any single domestic catalyst. Next week, markets will watch Chinese GDP and industrial data, alongside trade developments and the direction of global risk appetite.

The Indian rupee recovered from recent record lows as oil prices eased and calmer geopolitical conditions reduced immediate pressure on India’s external balance. The softer US dollar also helped, allowing the rupee to claw back some of the losses driven by the prior energy shock. Even so, the broader backdrop remains fragile, with investors still alert to imported inflation risks and the need for policy support if oil rises again. Next week, attention will centre on India’s inflation outlook, RBI signals and whether lower oil prices can be sustained.

The Australian dollar was one of the week’s clearer beneficiaries of improving sentiment, rebounding strongly as investors moved back into risk-sensitive currencies. The combination of a weaker US dollar, firmer commodity markets and expectations that the Reserve Bank of Australia may remain cautious on easing helped the Aussie regain momentum. It therefore outperformed many developed-market peers over the period. Next week, the currency will remain highly sensitive to China-related data, commodity prices and any change in global risk appetite.

The New Zealand dollar also advanced as the broad retreat in the US dollar encouraged demand for higher-beta currencies. The kiwi benefited from the same improvement in sentiment that lifted the Australian dollar, though gains were somewhat more measured given lingering concerns about New Zealand’s slower recovery and fiscal position. Even so, the currency ended the week on firmer footing. Next week, traders will focus on domestic business confidence, external risk sentiment and whether global markets continue rotating away from defensive assets.

The Mexican peso strengthened as calmer markets, a weaker dollar and still-supportive domestic yield dynamics encouraged renewed demand for emerging-market currencies. Mexico’s energy-export profile also helped cushion the economy from some of the wider oil volatility seen in recent weeks. While global uncertainty has not disappeared, the peso was among the currencies to benefit from the week’s improved tone. Next week, the peso will be sensitive to US data, risk appetite and any shift in expectations for Banxico’s next policy move.