Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar traded mixed but broadly firm last week, showing resilience after earlier weakness and consolidating near recent highs rather than extending a strong breakout. Sentiment was supported by US labour-market signals, with fewer than expected jobless claims lending the dollar mid-week support and reinforcing the view that the US economy remains resilient enough to delay Fed easing. At the same time, technical and positioning factors kept gains contained, with no clear catalyst for a sustained rally. Risk sentiment and market anxiety also played a role, intermittently favouring the dollar as a defensive asset while also limiting upside as broader FX volatility picked up. Overall, the dollar finished the week slightly stronger but range-bound, reflecting a market that is cautious, data-dependent, and waiting for clearer signals from inflation data, Fed communication, and shifts in global risk appetite.

The Canadian dollar traded on the softer side against the US dollar, with USD/CAD edging higher as the loonie struggled to gain traction amid a generally firm greenback. Broad USD strength was the dominant headwind, pushing USD/CAD modestly higher despite brief periods where political noise around US policy and questions over Fed independence temporarily gave loonie short-lived support. Risk sentiment was mixed, at times favouring safe-haven demand for USD, while occasional risk-on phases and commodity-linked flows helped limit deeper CAD losses. Trade-related optimism, including progress on Canada–China relations, provided some underlying support to Canadian assets and sentiment, but it was not enough to offset external USD pressure. Overall, the loonie weakened modestly, reflecting a market still driven more by US macro dynamics and global risk conditions than by domestic Canadian catalysts.

The euro traded slightly weaker against the US dollar, with EUR/USD drifting lower within a narrow range as broad dollar resilience and geopolitical uncertainty weighed modestly. The US dollar remained supported by firmer macro expectations and reduced conviction around aggressive Fed easing, which limited upside for EUR. Geopolitical risks and trade-related tensions involving Europe added a mild risk premium to the euro, keeping investor positioning cautious. While euro-area sentiment showed tentative improvement, confidence remained subdued overall, reflecting lingering concerns around growth momentum and capping EUR strength versus the dollar. In sum, the euro softened modestly but remained range-bound, with price action driven more by US macro dynamics and global risk factors than by fresh eurozone catalysts.

Sterling traded mixed but slightly weaker overall against the US dollar, with GBP/USD confined to a narrow range as shifting risk sentiment and policy expectations offset each other. Early in the week, the pound found brief support when US political uncertainty weighed on the dollar, allowing GBP to edge modestly higher, but those gains faded as mixed UK economic data and renewed focus on Bank of England easing risks reasserted pressure. While a stronger-than-expected UK growth reading helped limit downside at one point, it was not enough to generate sustained momentum, as markets continue to price the possibility of BoE rate cuts, capping upside for sterling. Overall, GBP/USD remained range-bound and directionless, ending the period broadly flat to marginally softer, with the pound supported near $1.34.

The Japanese yen remained under pressure against the US dollar, with USD/JPY staying elevated in the 158–159 range, reflecting continued yen softness despite intermittent stabilization. Early in the period, political uncertainty in Japan, including speculation around a potential snap election and fiscal stimulus, weighed on the currency and pushed USD/JPY toward multi-month highs. At the same time, a firm US dollar, supported by resilient US data and reduced expectations for near-term Federal Reserve rate cuts, kept upward pressure on the pair. However, intervention rhetoric from Japanese officials helped limit further depreciation, preventing a sharper break higher and keeping moves contained by the end of the week. Overall, the yen finished modestly weaker versus the dollar, with losses cushioned by intervention risk even as structural yield differentials and political factors continued to favour USD/JPY staying elevated.

The Swiss franc traded steady to modestly firmer against the US dollar, with USD/CHF edging lower as safe-haven demand and stable Swiss policy expectations helped cushion CHF performance. While the US dollar remained broadly resilient across FX markets, it underperformed against defensive currencies, allowing the franc to hold its ground and gradually strengthen. Cautious global risk sentiment and intermittent risk-off episodes supported demand for CHF, while the Swiss National Bank’s neutral, steady policy stance anchored expectations and reduced volatility. As a result, USD/CHF drifted lower through the period rather than breaking higher, leaving the franc modestly stronger overall and comfortably range-bound despite ongoing dollar support elsewhere.

The Chinese yuan traded modestly firmer, with USD/CNY edging slightly lower in a tight and well-managed range, reflecting mild CNY appreciation amid calm markets. The move was underpinned by continued PBoC management, including firm daily fixings that signalled official tolerance for stability and helped anchor expectations. While the US dollar remained broadly supported elsewhere, sentiment-driven fluctuations and limited conviction capped USD gains versus the yuan. At the same time, positioning and steady capital flows lent marginal support to CNY despite ongoing concerns around softer Chinese growth. Overall, the yuan’s performance reflected controlled strength, with authorities maintaining stability and markets content to trade within a band unless disrupted by stronger US data, shifts in PBoC signalling, or renewed geopolitical or trade-related headlines.

The Indian rupee weakened modestly, with USD/INR drifting higher and spending much of the period above the 90 level as persistent dollar demand, portfolio outflows, and NDF-related flows mounted pressure. Corporate demand for dollars around the RBI’s reference rate, alongside continued foreign selling in local equity and bond markets, limited any meaningful rupee recovery. Global factors also played a role, with firm US dollar momentum tied to inflation expectations and broader geopolitical caution reinforcing USD strength against emerging-market currencies. While RBI presence helped smooth volatility and prevent disorderly moves, it did not reverse the trend, leaving INR range-bound but biased weaker, ending the period near the upper end of its recent trading range and vulnerable to further pressure if US data, oil prices, or capital outflows remain unfavourable.

The Australian dollar edged weaker against the US dollar, with AUD/USD drifting lower in a tight range as US dollar resilience, mixed global risk sentiment, and soft China-related cues weighed on the currency. The greenback stayed supported by firmer US macro expectations and reduced confidence in near-term Fed easing, limiting upside for risk-sensitive currencies like the AUD. At the same time, uneven risk appetite meant that brief risk-on phases failed to generate sustained AUD demand, while bouts of caution applied renewed pressure. China-linked headwinds also played a role, as softer activity and inflation signals from Australia’s largest trading partner dampened commodity demand expectations. With iron ore and energy prices showing little upside, commodities offered only limited support, leaving the Aussie range-bound but biased lower.

The New Zealand dollar remained largely range-bound with a mild downward bias against the US dollar, as firm US dollar dynamics, mixed global risk sentiment, and subdued domestic fundamentals kept NZD constrained. A resilient greenback, supported by solid US macro signals and cautious Fed expectations, limited any sustained NZD upside, while uneven risk appetite prevented the kiwi from benefiting meaningfully from brief risk-on episodes. With New Zealand’s economic backdrop still characterised by soft inflation and moderate growth, and no major domestic catalysts emerging during the week, the currency largely followed external drivers. Overall, the kiwi ended the period little changed but slightly softer, reflecting a cautious market tone and continued sensitivity to US dollar movements rather than local developments.

The Mexican peso traded steadily to slightly stronger against the US dollar, with USD/MXN drifting lower within a tight range, reflecting modest peso resilience amid mixed global FX conditions. A consolidating US dollar provided room for small EM gains, while Banxico’s cautious tone and reluctance to accelerate rate cuts helped anchor carry support and limit downside risk for the peso. Stable oil prices added a mild tailwind, reinforcing Mexico’s terms-of-trade backdrop, and risk sentiment oscillated without triggering heavy outflows, keeping volatility subdued. Overall, the peso held its ground and edged firmer as policy credibility, commodity support, and contained dollar momentum combined to sustain range-bound trading with a slight supportive bias.