Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar struggled early in the week before stabilizing toward the close, reflecting a shift from broad selling pressure to tentative consolidation. The Dollar Index dipped toward multi-month lows as sell-America flows, geopolitical uncertainty, and repositioning away from USD assets weighed on sentiment, allowing major and emerging-market currencies to outperform. That downside momentum eased late in the week, however, as policy-related developments and firmer US signals prompted a rebound in Treasury yields and renewed dollar demand, helping the USD recover some lost ground by Friday. Overall, the dollar ended the week slightly softer but no longer accelerating lower, suggesting that while bearish pressure has eased, near-term direction remains highly data- and policy-dependent heading into key US inflation releases and evolving Fed expectations.

The Canadian dollar strengthened overall during the week, benefiting from early US dollar weakness and supportive commodity dynamics before giving back some gains into Friday. USD/CAD declined steadily through mid-week as broad USD selling and firmer oil prices lifted the loonie, with additional support coming after the Bank of Canada held rates and signalled policy stability amid global uncertainty. That momentum softened late in the week as mixed Canadian growth data and a modest rebound in the US dollar prompted a partial pullback, but the loonie still ended the period modestly stronger on net, reflecting relative resilience versus the USD despite late-week consolidation.

The euro strengthened overall during the week, advancing sharply against the US dollar as broad-based USD weakness pushed EUR/USD to a multi-year high mid-week before gains were partially trimmed into Friday. The euro’s rally was driven primarily by heavy dollar selling linked to shifting US policy expectations and reduced safe-haven demand, allowing EUR/USD to break above the 1.20 level for the first time in roughly four years. While EU macro data remained mixed, growth resilience helped support sentiment, even as ECB openly flagged concerns that the pace of euro appreciation could weigh on inflation. By week’s end, some profit-taking and a modest dollar rebound pulled EUR, but the euro still finished the period clearly stronger on a net basis, reflecting sustained confidence versus the USD.

The British pound strengthened modestly over the week overall, rising against the USD early on before giving back part of those gains into Friday. Sterling benefitted initially from broad-based US dollar weakness, improved global risk appetite, and relatively resilient UK economic data, which helped lift GBP toward mid-week highs. Risk-on equity flows and reduced demand for dollar safe havens supported the pound during the first half of the week, reinforcing the upward move. However, momentum faded late in the week as traders took profits and the dollar staged a mild rebound on US policy and macro cues, pulling GBP/USD back from its highs. Despite the late pullback, the pound still ended the week slightly higher on balance, reflecting a net gain versus the USD.

The Japanese yen strengthened modestly overall during the week, gaining ground against the US dollar through mid-week before surrendering some of those gains into Friday. Early in the period, broad USD weakness combined with bouts of risk-off sentiment and safe-haven demand supported the yen. This move was largely driven by external factors rather than any shift in domestic policy, as markets continued to view the Bank of Japan’s stance as firmly accommodative. As the week progressed, improved global risk appetite and a mild rebound in the US dollar prompted a partial reversal, lifting USD/JPY back by the end of the week. Even so, the yen finished slightly stronger on balance, reflecting that mid-week haven flows and dollar softness outweighed the late-week pullback.

The Swiss franc strengthened modestly overall during the week, benefiting from early safe-haven demand and broad US dollar softness before paring some gains into Friday. USD/CHF drifted lower through mid-week as investors responded to geopolitical uncertainty and macro caution by favouring defensive currencies, allowing the franc to outperform while the dollar retreated. With no material shift in SNB policy, CHF moves were driven almost entirely by external forces. Toward the end of the week, improving risk sentiment and a mild rebound in the USD prompted a partial reversal, lifting USD/CHF slightly higher. Even so, the franc finished the week mildly stronger on balance, as mid-week haven flows outweighed the late-week pullback.

The Chinese yuan strengthened modestly over the week, with USD/CNY dipping to lower levels mid-week before settling back into a tight range toward Friday. Early gains were driven by broad US dollar weakness and seasonal exporter demand ahead of the Lunar New Year, which pushed the yuan toward one of its strongest levels in several months. Supportive midpoint fixings from the People’s Bank of China reinforced stability and signalled tolerance for gradual appreciation. However, mixed domestic economic signals limited the scope for a sharper move, keeping trading orderly and range-bound into the end of the week. Overall, the yuan finished slightly firmer against the US dollar, reflecting controlled strength rather than a directional breakout.

The Indian rupee weakened over the week, sliding to fresh record lows mid-week before stabilizing modestly toward Friday. USD/INR climbed above the 92 level as strong importer demand, persistent foreign portfolio outflows, and firmer global dollar sentiment pressured the currency, marking the rupee’s weakest point around mid-week. Central bank intervention by the Reserve Bank of India helped limit further losses, leading to a partial recovery into the end of the week, but underlying pressures from capital outflows, hedging demand, and cautious risk sentiment remained. Overall, the rupee ended the week slightly weaker against the US dollar, with volatility contained only after RBI support actions.

The Australian dollar strengthened overall during the week, rallying sharply mid-week as broad US dollar weakness, rising commodity prices, and firm Australian inflation data lifted expectations that the Reserve Bank of Australia could adopt a more hawkish stance. AUD/USD climbed from the high-0.69s to above 0.70, reaching fresh multi-year highs before trimming gains into Friday as traders took profit and positioned ahead of the RBA policy decision. Despite the late pullback, the Aussie still ended the week firmer against the US dollar, with underlying sentiment remaining supportive.

The New Zealand dollar strengthened overall during the week, rising steadily against the US dollar as broad USD weakness and improved risk sentiment lifted antipodean currencies. NZD/USD climbed from just under 0.60 early in the week to a peak above 0.6070 by Thursday, supported by firmer New Zealand inflation data that pushed annual inflation to 3.1% and reinforced expectations that the RBNZ would remain cautious about easing, or potentially turn more hawkish. The kiwi eased slightly into Friday as the US dollar stabilized and some profit-taking emerged, but still ended the week clearly stronger versus USD, with underlying sentiment toward NZD remaining constructive.

The Mexican peso showed a two-phase performance during the week, strengthening against the US dollar early on as broad USD weakness and attractive carry dynamics drew flows into emerging-market currencies. Support came from Mexico’s relatively high interest rates versus the US, which continued to underpin carry trade demand while the dollar softened globally. However, those gains were partially reversed into Friday as the US dollar stabilized and broader FX markets saw profit-taking, lifting USD/MXN back toward the mid-17.4 range. Overall, the peso ended the week off its strongest levels, but still reflected solid underlying demand earlier in the period, with the late-week pullback driven more by dollar dynamics than a deterioration in Mexico-specific fundamentals.