Weekly Currency Update: Canadian Dollar Forecast This Week

The US dollar weakened over the week and registered a third consecutive weekly loss as investor sentiment turned decisively softer following the Federal Reserve’s rate cut and dovish guidance. The Fed’s decision to lower rates, combined with Chair Powell’s signals that further tightening was unlikely, reduced the dollar’s yield appeal and triggered broad selling. Even before the policy decision, markets had been positioning for easier US monetary conditions, and that dynamic persisted after the announcement as expectations for additional cuts or an extended pause gained traction. Improved global risk appetite also weighed on the greenback, with capital rotating toward equities and higher-yielding assets at the expense of traditional safe havens. While the weaker USD offered some relief to emerging-market currencies, underlying structural challenges limited the upside there.

The Canadian dollar strengthened over the past week, with USD/CAD falling sharply as the loonie extended its gains to the strongest levels seen since mid-September before a modest pullback. The move reflected broad CAD outperformance, underpinned by a surprise return to a trade surplus that helped improve confidence in Canada’s external position. Support also came from the Bank of Canada’s decision to hold its policy rate steady and signal a pause in its easing cycle, which contrasted with a softer US policy backdrop following the Federal Reserve’s rate cut. That divergence, combined with broader US dollar weakness, amplified downward pressure on USD and reinforced near-term CAD strength. While softer oil prices slightly capped gains, the overall tone remained constructive for the loonie as domestic fundamentals and relative central-bank dynamics favoured appreciation.

The euro strengthened over the past week, extending its advance against the US dollar as EUR/USD climbed to fresh two-month highs before easing slightly. The move marked a third consecutive weekly gain, driven primarily by broad USD weakness following the Federal Reserve’s rate cut and dovish guidance, which reduced the dollar’s yield appeal and encouraged flows into major alternatives. Improving EU yield dynamics and fading expectations of near-term ECB easing also helped underpin sentiment, allowing the single currency to outperform across several key crosses. While some consolidation emerged late in the week, demand for the euro remained firm. Looking ahead, the sustainability of EUR gains will depend on incoming US data, ECB communication, and broader shifts in global risk sentiment that continue to shape dollar direction.

Sterling ended the week modestly higher against the USD, benefiting primarily from broad USD weakness following the Fed's dovish rate cut and guidance. GBP/USD climbed toward multi-week highs earlier in the week, however, momentum faded later as soft UK GDP data surprised markets and reinforced expectations that the Bank of England will cut rates at its upcoming meeting, prompting a partial pullback in sterling. While GBP held up relatively well versus the dollar, its performance against the euro remained more constrained, reflecting mixed domestic fundamentals and diverging policy expectations. Looking ahead, sterling’s outlook will hinge on the BoE’s policy decision, incoming UK data, and whether continued USD softness can offset concerns around slowing UK growth.

The Japanese yen traded choppily but ended the week slightly weaker against the US dollar. Early in the week, the yen briefly found support as markets reacted to softer US rate expectations and growing speculation around potential Bank of Japan policy adjustments. However, those gains proved short-lived, and the pair drifted higher as persistent interest-rate differentials continued to favour the dollar. The BoJ’s cautious approach to tightening and the still-wide yield gap with the US kept underlying pressure on the yen, even as volatility remained contained. Looking ahead, attention will center on the BoJ’s upcoming policy decision, US data and Fed messaging, and shifts in global risk sentiment, all of which will determine whether the yen can stabilize or remains vulnerable to further weakness.

The Swiss franc strengthened modestly over the week, supported by steady safe-haven demand and a softer US dollar backdrop. USD/CHF drifted lower, reflecting continued investor interest in CHF as expectations for future Fed rate cuts weighed on the greenback. The franc also held firm against the euro, with EUR/CHF trading slightly lower, underscoring CHF’s defensive appeal amid cautious global sentiment. Guidance from the Swiss National Bank reinforced stability, with policymakers signalling no urgency to ease further and effectively anchoring the policy outlook. Looking ahead, the franc’s performance will hinge on shifts in global risk appetite, US rate expectations, and SNB communication, with CHF likely to remain well-supported so long as market uncertainty and USD softness persist.

The Chinese yuan traded in a narrow range over the past week, with USD/CNY broadly stable and showing only a slight weakening bias as markets consolidated after recent gains. The currency had been supported earlier by stronger-than-expected export data, which helped reinforce confidence in China’s external sector, but momentum faded as mixed domestic signals, tempered optimism. Over a longer horizon, the yuan has still posted modest appreciation against the US dollar, suggesting underlying support remains in place even as near-term trading turns more range-bound. Policy measures aimed at maintaining currency stability continue to limit sharp moves in either direction. Looking ahead, the yuan’s path will depend on shifts in USD dynamics, incoming Chinese economic data, and the authorities’ approach to managing volatility.

The Indian rupee weakened further over the past week, slipping to fresh record lows as USD/INR remained firmly above the INR 90 mark and sustained its downward trend. Persistent foreign portfolio outflows and strong demand for US dollars from importers, particularly for energy and commodity purchases, continued to weigh heavily on the currency. Brief intraday recoveries proved short-lived, as uncertainty surrounding India–US trade negotiations and broader risk aversion kept pressure on INR sentiment. With the pair closing near its weakest levels on record, the rupee remained one of the most vulnerable emerging-market currencies this week. Looking ahead, the focus will be on capital-flow dynamics, importer dollar demand, any intervention by the Reserve Bank of India, and shifts in global USD sentiment.

The Australian dollar strengthened convincingly over the past week, with AUD/USD trading near multi-week highs as solid momentum carried the currency higher against a softer USD. The rally was underpinned by a notably hawkish tilt from the Reserve Bank of Australia, which held rates steady and pushed back against near-term cuts. That stance contrasted with a more dovish global backdrop and helped AUD outperform several peers. Broader USD weakness and supportive trade and policy dynamics also favoured the Aussie, although softer Australian employment data triggered some late-week profit-taking and capped immediate upside. Overall, sentiment toward AUD remained constructive, with gains reflecting confidence in relative policy resilience, even as near-term direction becomes more sensitive to incoming domestic data.

The New Zealand dollar strengthened notably over the past week, climbing to its strongest levels in more than two months as NZD/USD benefited from broad US dollar weakness. The move was driven largely by the Fed's dovish tone, which supported higher-beta currencies such as the kiwi. NZD momentum was reinforced by a clear technical break higher, while policy divergence also played a role, with the Reserve Bank of New Zealand seen as nearing the end of its easing cycle. Gains were sustained despite some cross-currency volatility, particularly against sterling, underscoring that the rally was primarily USD-driven rather than purely domestic. Overall, the kiwi delivered one of its strongest weekly performances in months, with sentiment turning more constructive as long as USD softness and stable RBNZ expectations persist.

The Mexican peso traded with notable stability over the past week, holding firm against the US dollar. Softer US dollar following Fed cut allowed MXN to consolidate recent gains rather than give them back. That resilience builds on a strong broader performance this year, with the peso standing out as one of the better-performing emerging-market currencies amid steady investor interest. While near-term volatility stayed contained, sentiment toward MXN was helped by risk-on flows and reduced USD demand, even as macro uncertainties linger. Looking ahead, the peso’s outlook will depend on the balance between Fed-driven dollar moves, expectations around Banxico’s policy path, domestic inflation signals, and shifts in global risk appetite, all of which could determine whether MXN extends its stability or faces renewed pressure.