Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar strengthened modestly last week, with the DXY rising to around 99.14 from roughly 98.27, as markets reassessed Federal Reserve policy expectations and reacted to early-year data and shifting risk sentiment. The dollar saw support from firmer US yields, defensive positioning, and periods of risk aversion, even though it briefly retreated from near four-week highs earlier in the week. US labour data remained a central driver: December nonfarm payrolls rose by 50K versus around 60K expected, while the unemployment rate fell to 4.4% against a 4.5% forecast, a mixed signal that reinforced expectations the Fed is likely to hold rates steady in January rather than move quickly toward cuts. Equity-market volatility mid-week and selective safe-haven flows also helped underpin the greenback, while broader macro-optimism faded in and out. Overall, after a weak 2025, the USD ended the week modestly firmer, supported by yield dynamics, cautious positioning, and uncertainty over the timing of any Fed easing.

The Canadian dollar weakened this week, with USD/CAD rising from roughly 1.3773 to about 1.3878, a move that reflected broad CAD underperformance. The primary catalyst was disappointing Canadian labour data, as employment rose by only about 8,200 jobs in December while the unemployment rate climbed to 6.8%. Beyond the jobs report, risk-off sentiment weighed on CAD as investors pulled back from commodity-linked currencies amid heightened geopolitical uncertainty, while oil-market concerns tied to Venezuelan supply dynamics and trade-related uncertainty limited support from energy prices. The loonie had already been lagging other G10 peers earlier in the week, and the combination of soft domestic data, cautious investor positioning, and a firmer USD pushed USD/CAD toward near one-month highs, leaving loonie on a weaker footing by week’s end despite mixed longer-term outlooks that hinge on trade developments, oil prices, and future Fed and Bank of Canada policy paths.

The euro posted modest, contained gains, with EUR/USD edging higher, reflecting slight euro appreciation but within a very narrow range. Euro's gradual upward drift was driven mainly by broader dollar sentiment rather than euro-specific catalysts, as markets focused heavily on US macro data and reassessed Federal Reserve policy expectations. The euro found support from a relatively stable eurozone backdrop, with inflation continuing to ease toward target and domestic demand conditions remaining broadly benign, helping prevent downside pressure. However, upside momentum was limited as periodic US risk flows and demand for the dollar capped gains and kept EUR/USD largely range-bound. Overall, the week was characterized by low volatility, muted follow-through, and cautious positioning, leaving the euro slightly firmer but without a decisive breakout, as traders waited for clearer signals.

Sterling came under modest pressure against the US dollar, with GBP/USD slipping roughly 0.4% this week and leaving the pound set for a second consecutive weekly loss. Early-week strength, driven by improved sentiment and reduced fiscal and political risk, faded as traders turned cautious ahead of key UK GDP and labour-market releases, critical for assessing the Bank of England’s policy outlook. With money markets pricing a high probability that the BoE keeps rates unchanged in February following December’s cut, upside catalysts for GBP were limited. At the same time, steady US macro momentum and firmer dollar demand kept pressure on GBP, particularly as risk sentiment leaned defensive. Overall, the pound’s pullback reflected data uncertainty, anchored BoE rate expectations, and persistent USD support, leaving sterling weaker on the week but still trading within its broader recent range.

The Japanese yen weakened modestly this week, with USD/JPY climbing toward the mid-157 area, reflecting continued yen softness. The move was driven primarily by renewed USD strength, as firmer Treasury yields supported the greenback and widened rate differentials. Mid-week trading was choppy, with JPY briefly edging higher at times as markets waited for clearer Federal Reserve signals, but overall momentum stayed JPY-negative. Shifts in risk sentiment and geopolitics also played a role: easing concerns that had previously supported safe-haven yen demand faded, allowing capital to rotate back toward the dollar. On the domestic front, Japanese data such as household spending showed some resilience, but not enough to materially change expectations that the Bank of Japan will tighten only gradually. Overall, the week reinforced the theme of structural JPY weakness, with USD/JPY supported by US macro strength, cautious BoJ expectations, and fluctuating risk appetite.

The Swiss franc strengthened modestly during Jan 05–Jan 09, 2026, with USD/CHF drifting lower overall as safe-haven demand and stable Swiss policy supported CHF. The franc traded within a relatively contained range, reflecting intermittent CHF strength even as it finished the week modestly higher. CHF benefited from periodic risk-off flows and geopolitical caution, which reinforced its defensive appeal, while the Swiss National Bank’s neutral stance, signalling rates on hold and no urgency to counter franc strength, helped anchor expectations and limit volatility. At the same time, mixed US dollar dynamics prevented a decisive USD/CHF rally, allowing the franc to hold gains despite fluctuating Treasury yields. Overall, the week reinforced CHF’s role as a stable, defensive currency, mildly outperforming the dollar amid cautious global sentiment and steady Swiss monetary policy.

The Chinese yuan was largely stable against majors this week, with USD/CNY edging slightly lower, signalling mild yuan appreciation rather than any directional breakout. This stability was reinforced by People’s Bank of China (PBoC) fixings, which leaned slightly stronger over the period, indicating continued official preference for managed calm rather than depreciation. Broader market commentary highlighted mixed Chinese inflation signals and ongoing stimulus expectations, which can cap yuan upside, but these pressures did not translate into meaningful weakness. Instead, controlled FX policy, subdued US dollar volatility, and steady risk sentiment kept movements contained, leaving the yuan resilient and range-bound rather than reactive as the week closed.

The Indian rupee traded weak to largely stable last week, as persistent dollar demand and cautious sentiment offset intermittent support from the central bank. USD/INR opened near 90.23 on Jan 05, dipped to a weekly low around 89.85 on Jan 07, and then moved back higher to close near 90.23 on Jan 09, leaving the rupee slightly softer on the week. Intraday volatility was shaped by active RBI intervention, which helped cap sharper losses mid-week, but importer dollar demand, foreign portfolio outflows, and lingering tariff concerns kept upward pressure on INR intact. Global macro cues, including US jobs data and shifting inflation expectations, also influenced emerging-market flows, limiting INR recovery. Overall, the rupee remained range-bound but fragile, with policy support preventing disorderly moves.

The Australian dollar traded largely range-bound and slightly softer, as mixed global data and shifting risk sentiment limited directional conviction. AUD/USD started the week around 0.669, briefly rose to around 0.6761 on Jan 07, then eased back to about 0.669–0.670 by Jan 09, according to both market pricing and RBA reference data, leaving the currency flat to marginally weaker on the week. The Aussie faced intermittent pressure from bouts of US dollar strength and risk-off flows, while softer Chinese inflation data weighed on commodity-linked currencies, including AUD. With no fresh domestic catalysts and mixed global sentiment, traders largely kept positions light, resulting in sideways trading and only a mild downside bias for the Australian dollar over the period.

The New Zealand dollar edged modestly lower as firmer USD sentiment and mixed risk appetite capped upside. NZD/USD moved between a weekly high near ~0.5787 and a low around ~0.5741, and ending the week near the lower end of the range, implying a slight week-on-week decline for the kiwi. The move was driven mainly by intermittent USD strength linked to solid US macro signals and bouts of risk-off positioning, while mixed global sentiment kept NZD range-bound. Technical indicators leaned mildly bearish, limiting rebounds, and although brief risk-on phases offered short-lived support, gains were constrained. Overall, the kiwi drifted lower but remained contained, finishing the week slightly weaker as USD firmness and cautious positioning dominated.

The Mexican peso remained broadly stable to slightly stronger, trading in a tight range with very limited net movement by week’s end, leaving the peso marginally firmer. This stability reflects a continuation of the post–year-end pattern, with MXN holding near the lower end of its longer-term range, as global FX markets settled after thin holiday liquidity. A steady macro backdrop and subdued flows kept volatility low, while Banco de México’s cautious stance on further rate cuts, helped underpin MXN through relatively attractive carry. At the same time, range-bound USD dynamics prevented a sustained push higher in USD/MXN despite intermittent dollar strength mid-week, allowing the peso to avoid depreciation. Longer-term expectations also remain anchored, with market surveys pointing to continued range trading absent major shocks, reinforcing the view that MXN’s modest resilience this week was driven by structural support rather than short-term catalysts.