Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar consolidated near recent highs, with the Dollar Index trading in a tight band and finishing marginally softer overall while remaining well supported. Safe-haven demand linked to escalating Middle East tensions underpinned the greenback, particularly alongside firm US Treasury flows. At the same time, a hotter-than-expected Producer Price Index reinforced the view that the Federal Reserve is unlikely to rush into rate cuts, helping anchor the dollar despite limited upside momentum. Ongoing tariff debates and fiscal uncertainty tempered conviction, keeping positioning cautious and price action largely range-bound. Overall, the dollar held resilient levels even as it drifted slightly lower into the close. Looking ahead, focus will shift to US inflation and payroll data, Federal Reserve commentary, and geopolitical developments, all of which remain central to near-term dollar direction.

The Canadian dollar regained traction through the period, reversing early softness and pushing USD/CAD lower by the close as external drivers turned more supportive. Initial caution linked to US trade policy uncertainty kept the loonie on the defensive, but sentiment improved as the broader US dollar eased and commodity markets strengthened. Notably, a rally in oil prices provided a meaningful tailwind for the resource-linked currency, reinforcing demand despite an unexpected contraction in Canada’s fourth-quarter GDP. Markets largely downplayed the weak domestic growth print, choosing instead to focus on shifting global flows and relative dollar dynamics. Positioning trends, which had leaned constructively toward CAD earlier in the month, also helped amplify late-week gains. In the sessions ahead, attention will centre on Canadian inflation and labour data, oil price momentum, US macro developments and evolving trade policy signals, all of which remain pivotal for the loonie’s near-term direction.

The euro moved through a period of consolidation, with EUR/USD confined to a tight band and ending the week little changed overall. Price action reflected a lack of conviction on both sides of the pair, as investors balanced steady US fundamentals against an absence of fresh euro area catalysts. Geopolitical tensions, particularly in the Middle East, intermittently supported safe-haven demand for the dollar, limiting upside attempts in the single currency. At the same time, muted communication from the European Central Bank left rate expectations largely unchanged, offering no decisive push for euro bulls. The result was choppy, range-bound trading centred around the high-1.17 to low-1.18 zone. Looking ahead, direction will hinge on incoming US inflation and activity data, ECB guidance and shifts in global risk sentiment, all of which could determine whether the euro breaks out of its recent consolidation phase.

Sterling navigated a narrow corridor through the week, with GBP/USD oscillating around the mid-1.34s and closing little changed overall, though with a slightly softer tone. Political uncertainty in the UK, including surprise by-election developments that raised fresh questions about leadership stability, injected a modest risk premium into the currency and capped upside attempts. At the same time, markets continued to lean toward a more accommodative Bank of England outlook, with easing expectations limiting demand for the pound relative to the US dollar. Late-week firming in the greenback, supported by risk-off flows and resilient US data, further restrained gains. Technically, repeated failures to sustain moves above key psychological levels reinforced the range-bound pattern. In the sessions ahead, attention will centre on Bank of England guidance, UK political headlines and incoming US macro data, all of which remain critical for sterling’s directional bias.

The Japanese yen retreated over the period, with USD/JPY advancing into the mid-150s as policy divergence and dollar demand weighed on the currency. Market reaction to the appointment of two dovish Bank of Japan board members reinforced expectations that ultra-loose monetary settings will remain in place, dampening prospects for near-term tightening and limiting support for the yen. At the same time, resilient US data and ongoing geopolitical tensions channelled flows toward the dollar, further pressuring JPY despite its traditional safe-haven status. Intervention chatter and rate-check speculation underscored official sensitivity to rapid moves, though no decisive action materialised. In the near term, yen direction will hinge on evolving Bank of Japan guidance, US macro momentum and global risk sentiment, particularly across key crosses such as EUR/JPY and AUD/JPY that often reflect broader appetite trends.

The Swiss franc drifted lower as USD/CHF advanced steadily, reflecting stronger demand for the greenback amid heightened geopolitical tensions and firm US macro signals. Although the franc retains its safe-haven credentials, defensive flows favoured the US dollar more decisively during this stretch, limiting CHF outperformance. With no fresh guidance from the Swiss National Bank, the currency lacked a domestic catalyst and remained largely driven by external forces, particularly shifting Federal Reserve expectations and broader risk dynamics. Cross-currency performance was relatively contained, underscoring that the move was primarily dollar-led rather than CHF-specific weakness. In the days ahead, focus will turn to US economic releases, geopolitical developments and any commentary from the SNB that could influence sentiment toward the franc.

The Chinese yuan maintained a firm footing within its managed trading band, with USD/CNY fluctuating narrowly and leaning slightly lower before stabilising. Daily midpoint settings from the People’s Bank of China signalled a preference for stability, even as underlying flows pointed to appreciation pressure from export receipts and post–Lunar New Year corporate conversions. However, policy fine-tuning late in the period, including the removal of the 20% risk reserve requirement on forward FX contracts, suggested authorities were keen to prevent overly rapid gains, prompting brief softness in offshore yuan markets. Broader US dollar resilience toward the end of the week also limited further upside for CNY. Overall volatility remained contained, reflecting the managed nature of the regime. In the coming sessions, attention will centre on PBoC fixing guidance, trade data trends, offshore positioning dynamics and the direction of US macro developments, all of which shape the yuan’s near-term trajectory.

The Indian rupee navigated a volatile backdrop with a slight weakening bias, as USD/INR hovered near the ₹91 mark amid rising external pressures. Escalating Middle East tensions lifted crude oil prices, intensifying headwinds for the oil-import-dependent economy and dampening sentiment toward the currency. At the same time, safe-haven demand for the US dollar limited any sustained rupee recovery. The Reserve Bank of India was seen actively smoothing volatility around key psychological levels, helping prevent disorderly moves despite intermittent capital outflows from local equity and bond markets. Corporate flows and non-deliverable forward activity kept trading ranges relatively contained, even as underlying pressure persisted. In the period ahead, rupee direction will remain sensitive to oil price dynamics, RBI intervention signals, US macro momentum and shifts in foreign investment flows into Indian assets.

The Australian dollar carved out modest gains, with AUD/USD holding a constructive bias and edging higher by the close despite intermittent pullbacks. Support stemmed from the Reserve Bank of Australia’s relatively firm policy stance, which has helped maintain favourable yield differentials and sustained interest in carry positioning. While early-week trade uncertainty and geopolitical unease tempered risk appetite, a softer tone in the US dollar later in the period allowed the Aussie to regain traction. Commodity-linked fundamentals also lent background support, reinforcing the currency’s resilience near the 0.70 handle. That said, lingering US inflation concerns and cautious global sentiment capped the scope for a broader rally. Looking ahead, domestic CPI and growth data, RBA communication and shifts in US macro expectations will remain central to the Australian dollar’s near-term trajectory.

The New Zealand dollar struggled to build sustained upside momentum, with NZD/USD confined below the 0.6000 threshold and ending the period marginally softer. Early stability driven by tentative risk-on sentiment faded as renewed US dollar firmness and lingering trade uncertainty capped rallies. The Reserve Bank of New Zealand’s steady and accommodative policy stance offered little fresh incentive for buyers, particularly as expectations for near-term tightening remained subdued relative to other major economies. As a high-beta, risk-linked currency, the kiwi was also sensitive to shifts in global sentiment, which turned more cautious mid-week and limited appreciation attempts. Despite intermittent dip-buying near support levels, the broader tone remained one of consolidation. In the sessions ahead, focus will rest on RBNZ communication, US economic releases and evolving risk appetite, alongside commodity and export flow trends that shape medium-term currency dynamics.

The Mexican peso held within a narrow corridor, with USD/MXN showing a slight upward tilt as broader dollar firmness trimmed earlier stability. Price action lacked strong directional conviction, reflecting a balance between supportive domestic fundamentals and external pressure from a steadier greenback. Elevated inflation and Banxico’s relatively high policy rate continued to anchor the peso’s yield appeal, helping cushion downside moves even as global FX flows favoured the US dollar at times. Solid late-2025 growth momentum also reinforced underlying resilience, though not enough to generate a decisive rally. Risk sentiment across emerging markets remained mixed, keeping volatility contained and preventing a sharp break in either direction. In the week ahead, focus will remain on US macro signals and Federal Reserve expectations, Banxico guidance and inflation trends, oil price dynamics and broader capital flows into emerging markets.