Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar regained some footing this week as optimism around a Middle East ceasefire faded and investors returned to safer assets. Renewed uncertainty around the Strait of Hormuz, firmer Treasury yields and signs of US economic resilience helped the greenback recover after several weeks of weakness. Even so, the move was not one-way, with softer risk appetite offset by lingering expectations that the Federal Reserve may still have room to ease later in the year. Next week, the dollar will be driven by the Fed decision, US growth and inflation signals and any fresh turn in Iran-related negotiations.

The Canadian dollar posted another resilient week, supported by stronger domestic retail sales and a still-constructive tone in commodity markets. The loonie briefly benefited from improved risk sentiment earlier in the period, then held up even as oil prices became more volatile and the US dollar regained some safe-haven demand. Retail sales growth helped reinforce the view that Canadian demand has not fully cracked, although softer volumes kept the outlook balanced. Next week, CAD direction will depend on Canadian GDP, Bank of Canada expectations, oil prices and whether geopolitical risk keeps supporting defensive dollar flows.

The euro traded with a softer bias as renewed Middle East uncertainty and firmer US yields revived demand for the dollar. The single currency remained caught between lower immediate energy stress and lingering concern that any renewed disruption could quickly revive inflation and weaken eurozone growth. Markets also looked ahead to the European Central Bank meeting, where policymakers are expected to balance easing ceasefire pressure against still-uncertain energy flows. Next week, ECB guidance, eurozone activity data and developments around the Strait of Hormuz will be key for the euro.

Sterling held relatively steady but lacked a strong catalyst as traders balanced UK inflation data, firm retail figures and broader geopolitical risk. The pound avoided a sharper decline because domestic data remained resilient enough to keep Bank of England caution in play, but renewed dollar strength limited upside. With energy uncertainty still affecting the UK inflation outlook, sterling remained sensitive to both local data and global risk conditions. Next week, the pound will be guided by Bank of England commentary, UK activity signals and whether Middle East tensions keep lifting the US dollar.

The Japanese yen stayed under pressure as the dollar recovered and Japanese officials stepped up warnings about disorderly currency moves. Higher energy costs and yen weakness continued to complicate Japan’s inflation outlook, while markets remained uncertain about how quickly the Bank of Japan will tighten policy. The approach of the 160-per-dollar area kept intervention risk firmly in focus, helping limit deeper yen losses late in the week. Next week, attention will centre on the Bank of Japan meeting, Japanese inflation signals, intervention rhetoric and any oil-driven volatility.

The Swiss franc remained supported by residual safe-haven demand, although renewed dollar strength limited its broader appeal. The franc continued to benefit from global caution, but investors remained aware that the Swiss National Bank is uncomfortable with excessive appreciation and may respond if currency strength tightens conditions too sharply. That left CHF firm but contained. Next week, the franc is likely to track geopolitical headlines, broader European rate expectations and any fresh SNB signals on intervention.

The Chinese yuan traded cautiously as renewed dollar demand and regional risk sensitivity weighed on Asian currencies. While Beijing continued to favour orderly currency conditions, the yuan struggled to build momentum as investors assessed the impact of higher energy uncertainty and softer global confidence. The currency remained relatively contained, reflecting policy management rather than a decisive market-led move. Next week, traders will watch Chinese activity data, loan prime rate guidance, trade signals and the broader tone in global risk markets.

The Indian rupee remained vulnerable as higher crude prices and renewed dollar demand revived pressure on energy-importing economies. The currency faced headwinds from India’s oil import exposure, importer dollar demand and caution across emerging-market assets. Central bank support helped prevent disorderly moves, but the broader tone stayed fragile. Next week, the rupee will be driven by crude prices, RBI signals, inflation expectations and whether geopolitical uncertainty continues to lift safe-haven dollar flows.

The Australian dollar struggled to extend its recent recovery as renewed Middle East uncertainty cooled risk appetite and supported the US dollar. The Aussie remained underpinned by its commodity exposure and still-watchful Reserve Bank of Australia backdrop, but those supports were not enough to fully offset the broader pullback in cyclical currencies. China-linked sentiment also remained important for direction. Next week, AUD will be sensitive to Australian inflation data, China activity signals, commodity prices and the global risk tone.

The New Zealand dollar traded defensively as the broader risk backdrop turned more cautious and the US dollar regained ground. The kiwi remained vulnerable because domestic momentum is still uneven and the Reserve Bank of New Zealand has signalled caution while assessing inflation risks from global shocks. Without a strong local catalyst, NZD mostly followed wider swings in risk appetite. Next week, the currency will depend on business confidence, global risk sentiment and any change in Middle East tensions.

The Mexican peso held up better than many emerging-market peers, supported by attractive yields and Mexico’s relative insulation from some energy-price shocks. Still, the peso’s upside was capped by renewed dollar demand and a more cautious tone across global markets. Its performance remained tied to the balance between carry demand and risk aversion. Next week, MXN will be sensitive to US data, Banxico expectations, oil prices and broader emerging-market flows.