Weekly Currency Update: Canadian Dollar Forecast This Week

The USD has entered a period that has historically been unfavourable for the currency. The greenback remained under pressure this week, with the Dollar Index sliding toward one of its worst weekly drops in months as markets sharply increased bets on a December Fed rate cut. Softer US data has amplified the move, with manufacturing surveys pointing to weakening orders and rising inventories, while consumer sentiment has deteriorated notably on concerns about inflation and economic uncertainty. Falling Treasury yields have further reduced the dollar’s appeal relative to global assets, reinforcing the view that US demand is cooling and that Fed policy is shifting toward easing. In the near term, the trajectory of the USD will depend heavily on upcoming data and Fed communication, any fresh signs of slowing growth or dovish commentary could extend the dollar’s slide, while stronger numbers or a firmer Fed tone may offer a temporary reprieve.

Canadian dollar remains steady near 1.40 even after a strong multi-month USD/CAD rally, with the loonie tracking other commodity currencies despite tighter US–Canada rate differentials and rising expectations of a December Fed cut. Today’s GDP print for Q3 confirmed that the economy avoided recession, with the flash estimate pointing to a modest recovery close to the BoC’s own forecasts. But upcoming domestic data, including next week’s labour report, is unlikely to shift the policy outlook, as markets already see the BoC firmly on hold. The December 10 meeting is therefore expected to deliver a straightforward pause, with no new forecasts until January. Meanwhile, Canada’s Budget has not changed the broader macro picture, and lingering US–Canada trade frictions offer little clarity ahead of next week’s meeting between PM Mark Carney and President Trump. All told, without major shocks, CAD stability looks set to persist.

The euro has been buoyed by the recent underperformance of the US dollar, benefiting from a shift in US rate expectations as dovish Fedspeak and softer labour market data prompt investors to reassess the Fed’s path. Even so, the latest rebound in the pair appears to be lagging the widening EUR-USD rate spread, suggesting room for further euro upside. EUR demand has also improved amid renewed diplomatic efforts around the conflict in Ukraine. In the week ahead, euro traders will watch the flash HICP print for November, final Eurozone PMIs and a slate of ECB speeches. With core inflation expected to rebound toward 2.5% year-on-year, the data should reinforce the view that the ECB’s easing cycle is effectively over. Risks tied to Ukraine and France’s budget process may also influence sentiment, but overall, EUR is likely to continue tracking broader USD dynamics while remaining supported.

The pound has regained some ground following the autumn statement, driven largely by a classic buy the rumour, sell the fact reaction as the fiscal update avoided the worst-case scenarios many investors had feared. The government managed to reassure gilt markets through a combination of tax hikes and targeted cost-of-living support, while updated OBR projections helped by lowering real GDP expectations but raising inflation and nominal growth assumptions. Although the front-loaded spending and back-loaded taxes raise some questions about long-term fiscal credibility, the oversold GBP is now taking its cues from improving signals on UK creditworthiness and easing gilt yields,. In the week ahead, GBP sentiment will hinge on BoE speeches and the final November PMIs, with scope for the pound to extend gains. Against the USD, GBP will remain closely tied to broader dollar moves and the durability of global risk appetite.

The yen has staged a tentative revival, helped by a firm JGB auction that signalled investors are not yet alarmed by PM Takaichi’s ambitious spending plans and a sharp shift in the US–Japan rate spread. Even as the currency firmed, officials continued strong verbal intervention, with Takaichi reiterating that FX moves are being watched closely and action will be taken if needed. Markets are now pricing an 80% chance of a Fed rate cut in December and better than even odds of a BoJ rate hike, though a dovish speech from BoJ board member Noguchi capped expectations on the latter. The yen’s rebound faces key tests in the coming week as core US PCE data return following the shutdown, shaping Fed expectations, while BoJ Governor Kazuo Ueda’s upcoming remarks will help steer market assumptions for December. Japan’s capital-spending data will also feed into the second estimate of Q3 GDP, and ongoing speculation around the scale of new JGB issuance keeps auctions in sharp focus as additional drivers for the yen.

The Swiss franc has underperformed its G10 peers in the second half of November as softer safe-haven demand weighed on the currency. Global equities have stabilized and geopolitical tensions eased slightly amid renewed discussion of a Ukraine–Russia peace plan, limiting CHF support. Domestic news has been quiet but activity picks up this week: Wednesday’s CPI release will help determine whether the recent inflation undershoot is worsening. Economists expect inflation around 0% YoY but officials have stressed they would look through a few negative prints. The SNB is likely to hold steady at its 11 December meeting, potentially trimming the near-term inflation path while slightly upgrading growth forecasts following progress on the US-Switzerland trade discussions. With policy already relatively accommodative, the CHF remains a compelling funding currency for higher-yielding assets, though near-term caution may linger given the franc’s typically supportive December seasonality.

The yuan has extended its multi-month appreciation trend, with the onshore rate firming toward the 7.07 per USD area, its longest run of gains since 2021, although the rally has cooled slightly after the PBOC delivered its first weaker-than-expected midpoint fixing in months, signalling a desire to temper the pace of appreciation. China’s macro data remain mixed: industrial output growth slowed, retail sales were soft, and October exports fell for the first time since February. Even so, many global analysts still view the yuan as undervalued based on current-account strength, valuation metrics and longer-term capital-flow potential, suggesting scope for appreciation. This week, markets will focus on PBOC fixing behaviour, manufacturing and trade releases, domestic-demand indicators, USD momentum and global risk sentiment, along with any policy cues or stimulus signals.

The Indian rupee remains under significant pressure after recently hitting a record low, despite a brief recovery early in the week when the Reserve Bank of India intervened by selling dollars through state-run banks. Even with that support, the broader trend is still negative, as the rupee is down roughly 4.5% this year. A firm US Federal Reserve rate environment continues to keep dollar yields high, fuelling global dollar demand and weighing on emerging-market currencies like INR. At home, heavy importer dollar demand, wider trade deficits and ongoing foreign portfolio outflows have added to the strain. Near-term performance will hinge on how aggressively the RBI continues to lean against volatility, the path of US yields and Fed policy expectations, movements in India’s energy and commodity import bills, and whether capital flows stabilize.

The AUD has benefited from the softer tone in returning US data, which has allowed AUD to push back against its recent downtrend. Strong Australian monthly inflation data has reinforced expectations that the RBA’s cutting cycle is likely over, and investors are already debating when the next hiking cycle could begin based on historical patterns. The key local focus now is Australia’s Q3 GDP, where growth is expected to be supported by strong private CAPEX, data-centre construction and elevated residential building activity, while weak consumption and modest net exports may cap the headline figure. If GDP surprises to the upside, especially in the context of recently accelerating monthly inflation, it could make the RBA more comfortable with a future hawkish shift. Broader AUD direction will also hinge on US ISM and core PCE data, given the market’s heavy pricing of a December Fed rate cut.

The NZD has broken its downtrend, with NZD/USD’s move above 0.5700 marking a meaningful technical shift, helped by softer US data and a hawkish-leaning rate cut from the RBNZ. The market reaction reflects the view that while the RBNZ cut rates, its tone signalled caution about deeper easing, keeping expectations alive for a potential hiking cycle further down the road. Domestic business activity and confidence indicators have stabilized, though consumer sentiment and the labour market remain soft. In the near term, NZD direction will continue to be heavily influenced by global drivers, particularly US data. With markets now aggressively pricing in a December Fed rate cut, any stronger-than-expected US ISM or core PCE readings could reverse some of the recent NZD gains by reviving USD strength.

The Mexican peso has shown steady resilience, with USD/MXN holding broadly within the 18.30–18.50 range over the past month. The latest 25 bp rate cut by Banxico, bringing the policy rate to 7.25%, its lowest since mid-2022, reflects softer economic activity, but the central bank’s cautious tone on further easing, driven by sticky core inflation, has helped limit downside risks. Headline inflation has cooled into the target band, yet Banxico continues to flag persistent inflation risks. Against this mixed backdrop, MXN remains supported by its still-attractive yield profile, controlled inflation, and stable trading band, while staying sensitive to global dollar movements, US macro conditions, and Mexico’s export-linked growth. A firmer USD or weaker global risk sentiment could pressure the peso, while softer US yields, steady Banxico guidance, and healthy trade flows would help MXN maintain its resilience.