Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar began the week on the front foot as safe-haven demand remained strong and the latest oil shock kept inflation concerns firmly in focus. Mid-week, the greenback lost some momentum after the Federal Reserve held rates steady and markets began to focus more on the sharper hawkish repricing taking place outside the United States. Even so, the dollar remained broadly supported by war-time demand for liquidity and the view that the US economy is better insulated from the energy shock than many of its peers.

The Canadian dollar traded in a more nuanced fashion than the broader oil story alone might suggest. Rising crude prices continued to offer a clear fundamental tailwind, and softer Canadian inflation at the start of the week gave way to expectations that the Bank of Canada may need to stay alert to an energy-driven rebound in price pressures. Even so, the loonie did not fully capitalise on the oil surge, with broader market caution and lingering trade-related uncertainty limiting follow-through despite Canada’s improving terms-of-trade backdrop.

The euro had a firmer tone later in the week after the European Central Bank kept rates unchanged but signalled it was watching the inflationary fallout from higher energy prices closely and stood ready to act if needed. That shift helped support the single currency, even though the broader euro zone outlook remained clouded by the region’s vulnerability to elevated oil and gas costs. In effect, the euro found support from a more forceful policy signal, but the underlying economic backdrop stayed fragile.

Sterling continued to show surprising resilience relative to many European peers. Support came from an increasingly hawkish Bank of England backdrop, with the central bank holding rates steady but adopting a tone that markets interpreted as more open to future tightening if energy-led inflation proves persistent. That helped the pound hold up better than the euro and yen, although the currency still faced an uneasy balance between higher rate expectations and concern that Britain’s growth outlook could deteriorate if the energy shock drags on.

The Japanese yen remained under pressure for much of the week, even as the Bank of Japan kept rates unchanged and acknowledged that rising oil costs could fuel underlying inflation. The currency did find some support after the policy decision, but the broader picture stayed difficult: Japan’s heavy dependence on imported energy left the yen exposed, and investors remained focused on the tension between mounting inflation risks and the BOJ’s reluctance to tighten too aggressively into a fragile recovery.

The Swiss franc stayed firm as geopolitical stress continued to favour defensive currencies, though its gains were less dramatic than the dollar’s earlier surge. As rate expectations shifted higher across Europe, the franc also had to compete with a broader rethink of monetary policy differentials rather than rely solely on safe-haven demand. The result was a currency that remained well supported, but no longer had the market entirely to itself as the crisis evolved.

The Chinese yuan traded with a softer underlying tone as a cautious global backdrop and broader dollar demand continued to weigh on sentiment. Beijing’s push to expand digital yuan infrastructure underscored its longer-term ambition to strengthen the renminbi’s role in payments, but that structural story did little to offset the near-term drag from external uncertainty and a market still inclined toward liquidity and safety. The yuan therefore remained pressured by the same global forces that challenged much of emerging-market FX.

The Indian rupee endured one of the toughest weeks among major Asian currencies, sliding to fresh record lows as oil prices surged and concerns over India’s external balances intensified. Persistent foreign outflows and steady dollar demand from local oil companies compounded the pressure, leaving the currency highly sensitive to every move in energy markets. Central bank intervention slowed the descent, but the broader tone remained decisively negative as investors priced in the economic cost of a prolonged supply shock.

The Australian dollar had a constructive week overall, underpinned by the Reserve Bank of Australia’s decision to raise rates again and by expectations that further tightening may still be needed if energy prices keep inflation elevated. That hawkish shift helped the Aussie outperform even as day-to-day moves remained choppy and global risk sentiment stayed unstable. In effect, the currency drew support from both higher domestic yields and Australia’s relative insulation compared with more energy-import-dependent economies.

The New Zealand dollar remained more vulnerable than the Australian dollar, with the week’s cautious market mood and renewed fiscal concerns keeping the kiwi on the defensive. Fitch’s move to cut New Zealand’s outlook to negative added another headwind, reinforcing worries about the country’s fiscal trajectory and the fragility of its recovery. With no strong domestic positive catalyst to counter those concerns, the kiwi continued to trade mainly as a risk-sensitive currency in an unsettled global environment.

The Mexican peso lacked a strong currency-specific catalyst this week and was shaped mainly by the broader global backdrop. Higher oil prices offered some support from Mexico’s exporter profile, but that was offset by stronger defensive demand for the US dollar and a general tightening in global financial conditions as markets repriced inflation and interest-rate risks. The result was a peso that remained relatively steadier than some peers, but still traded under the shadow of global risk aversion.