Weekly Currency Update: Canadian Dollar Forecast This Week

With the US government shutdown now over, market attention is shifting to the return of official data, and the quality of those releases may determine whether the recent USD rally has already peaked, as fresh numbers could reveal how much the shutdown hurt growth and strengthen dovish voices inside the FOMC ahead of December. At the same time, the resumption of federal spending is set to add USD liquidity and erode the currency’s recent liquidity premium, creating another headwind. Investors appear to be reassessing the near-term benefits of the AI boom, initially viewed as growth-positive but now increasingly seen as a potential drag on employment and inflation. In the days ahead, the delayed non-farm payrolls, November PMIs, Fedspeak and the October FOMC minutes will be crucial, with the USD looking vulnerable to any weak data or dovish signals.

The Canadian dollar has moved from its six-month lows after a stronger-than-expected jobs report last Friday, with solid employment gains and a surprise drop in the unemployment rate. But even with that upside surprise, the USD/CAD pair has struggled to break and hold below 1.40 this week, as CAD continues to lag other commodity currencies. Part of that hesitation reflects lingering political uncertainty ahead of next week’s Fall Budget, as the Liberals’ minority government still needs support or abstentions from opposition MPs to avoid the risk of defeat and a snap election early next year. Beyond politics, the October CPI release will be a major CAD driver, particularly after last month’s upside surprise. With the BoC increasingly focused on activity and labour-market stabilization, and signs that the worst of the slowdown may be passing, the slightly undervalued CAD could begin to notch modest, gradual gains.

The euro has extended its rebound after hitting multi-month lows in early November, with several supportive forces now moving in clear alignment. The pair is benefiting from a widening EUR/USD rate spread as softer US data has revived dovish Fed expectations. Another factor in the backdrop is the USD’s persistent money-market premium over the EUR, a key driver of EUR underperformance during the US government shutdown, which is expected to fade now that the shutdown has ended. Looking ahead, preliminary EU PMIs for November and the latest negotiated wage data will be critical, especially after this week’s soft German ZEW survey. ECB communication will also be in focus. Overall, barring sharp data disappointments or unexpectedly dovish signals from the ECB, the euro looks well-placed to hold its ground, and possibly extend modest gains, against the USD in the near term.

Sterling remains one of the weakest G10 performers in Q4, dragged down by worsening growth signals and rising fiscal anxiety ahead of the crucial 26 November Autumn Budget, with disappointing labour and GDP data deepening investor pessimism. Political uncertainty has added further strain: questions over the stability of PM Keir Starmer’s government and, importantly, the future of Chancellor Rachel Reeves have unsettled markets, raising fears that any threat to her position could weaken confidence in the UK’s commitment to fiscal prudence. Looking ahead, the pound will remain vulnerable to growth, fiscal and political headlines, with October CPI and retail sales data in focus, while FX investors closely monitor speeches from BoE officials. In all, while GBP is likely to stay on the defensive, some consolidation is possible if data avoids fresh disappointment or delivers a modest upside surprise.

Japanese yen remains under pressure as USD/JPY pushes higher, lifted by stronger global risk sentiment and the end of the US government shutdown. Finance Minister Katayama has stepped up warnings, but her comments still register only a level 4 on the 7-point intervention scale, signalling concern, but not imminent action. In comparison, PM Takaichi favours a slower pace of BoJ tightening. The yen may find some relief as US data start flowing again, especially if incoming releases show softness. Domestically, Japan’s Q3 GDP is expected to contract as global demand cools and US tariffs bite, while nationwide inflation is set to reaccelerate. Yet much of this rise reflects the expiry of the government’s water-charge waiver, a temporary boost the BoJ is likely to look through, leaving policy normalization cautious and keeping the yen sensitive to US data, global risk appetite and yield spreads in the days ahead.

Swiss franc has been one of the strongest G10 performers this week. The momentum came from reports that Switzerland and the US are nearing an agreement on a trade deal that could slash tariffs on Swiss imports from 39% to 15%. Markets are watching closely as Switzerland’s economy minister heads to Washington for final talks. However, uncertainty lingers over whether the critical pharma sector will be included, given its vulnerability to broad US tariff measures. Domestically, news has been muted: the small drop in SNB FX reserves suggests the central bank stayed out of FX markets despite mid-month franc gains, and upcoming data such as Q3 GDP and October trade figures may show only modest momentum. While Switzerland’s outlook remains subdued, with a strong USD/CHF limiting the benefits of easier monetary conditions, a calming in global risks could eventually help reverse some of the franc’s recent strength.

China’s latest data painted a picture of steady but uneven momentum, with industrial activity improving and unemployment edging lower, helping the yuan firm to a one-week high on the back of a stronger PBOC fixing and softer US data. Still, weak retail sales and sluggish investment highlight the structural challenges that continue to weigh on sentiment, keeping expectations for a cautious recovery intact. For the USD/CNY, the key drivers remain the PBOC’s daily midpoint signal, upcoming domestic data, and shifts in broader US dollar strength. If China’s growth pulse holds and global conditions stay supportive, the yuan could see modest upside, but if domestic indicators disappoint or the USD rebounds, the currency may stay range-bound or come under renewed pressure.

The rupee ended the session slightly weaker, closing near 88.74 per US dollar, with the currency under pressure despite earlier gains tied to optimism around US–India trade discussions. Strong US yields and steady importer demand for dollars kept INR on the back foot, even as India’s wholesale inflation fell faster than expected, a sign of easing price pressures but also softer producer demand. The Reserve Bank of India remained active in the market, selling dollars to keep USD/INR from slipping beyond key levels, underscoring the currency’s vulnerability to shifts in global dollar strength, oil-related import demand, and the pace of trade negotiations. Near term, the rupee is likely to stay range-bound with RBI support, though any firming in US yields or weakening intervention could tilt the balance toward further INR softness.

The Australian dollar continues to outperform its New Zealand counterpart as policy expectations between the RBA and RBNZ diverge further. Strong Australian labour data this week reaffirmed that conditions remain tight, effectively removing expectations for additional RBA rate cuts. However, AUD/USD remains capped by a firm USD, and a broader USD pullback, potentially triggered by the resumption of US data post-shutdown, is likely needed for the pair to push higher. Upcoming Australian wage-price data is not expected to be a major catalyst. Weak wage data, meanwhile, could raise arguments around a lower natural unemployment rate, though this too appears improbable. RBA meeting minutes are also unlikely to move markets given the unanimous on-hold decision and subsequent data that support the Board’s stance.

The New Zealand dollar remains stuck in a clear downtrend as markets continue to expect additional RBNZ easing while Australian policy turns comparatively more hawkish. Tame NZ inflation expectations and soft macro signals reinforce expectations of further rate cuts, keeping NZD/USD under persistent pressure. While models suggest the NZD is undervalued, there is little in the near-term data flow likely to shift sentiment: upcoming NZ trade and PMI releases are not expected to influence RBNZ pricing ahead of next week’s decision, where markets still lean toward the possibility of another 50 bp cut. With the USD firm and domestic fundamentals softening, the NZD is likely to remain on the defensive near term.

The Mexican peso showed resilience over the past week, with USD/MXN falling roughly 0.66%, reflecting a modest strengthening. This improvement was supported by a softer USD, easing domestic inflation pressures, and a slight return of investor interest toward Mexican assets. However, the broader macro backdrop remains challenging: Moody’s cut Mexico’s 2026 GDP growth forecast to around 1.2% amid concerns over trade frictions, structural constraints, and a stagnant investment landscape, all of which leave the peso sensitive to shifts in sentiment. In the week ahead, the key catalysts for MXN will be inflation data and Banxico’s tone, which could help the currency if inflation remains contained. alongside the direction of the US dollar, global risk appetite, and any developments affecting Mexico’s export sector.