What’s Next for USD, CAD, and AUD?

The FX market has been showing some volatility, with the U.S. Dollar (USD) showing signs of softening amidst varying economic signals. The slight dip in the USD's strength was influenced by inconsistent Treasury yields and a relatively quiet economic calendar for this week. This environment underscores heightened investor sensitivity to political developments, particularly in the United States. Key focus areas include the appointment of influential economic policymakers, which could have far-reaching implications for fiscal strategies, trade policies, and overall market sentiment. Models analysing the USD indicate it may be overvalued against several major currencies, including the EUR, AUD, and CAD, raising questions about the sustainability of its current levels. Adding to the pressure, speculative long positions on the USD have surged to their highest in over a year, signalling a potentially limited scope for further appreciation.

DXY Weekly Chart – 7 Weeks Bullish Momentum 

CAD Outlook

The Canadian Dollar remains under strain, trading near multi-year lows against the USD. This weakness is largely attributed to domestic economic uncertainties and external factors such as fluctuating oil prices. The release of Canada’s inflation data yesterday has become a critical pivot for traders and policymakers alike. The deviation upward from expected inflation trends will significantly impact the Bank of Canada’s (BoC) monetary policy decisions, particularly regarding interest rate adjustments. 

Canada CPI 

The CAD’s recovery remains uncertain, with markets anticipating whether the BoC will adopt a more hawkish or dovish stance in response to evolving economic conditions.

USDCAD H4 Chart 

AUD Performance

The Australian Dollar has demonstrated a modest recovery, supported by a dovish yet cautiously optimistic approach from the Reserve Bank of Australia (RBA). Inflation data, while gradually stabilizing within the central bank’s target range, remains a key driver of monetary policy outlook. You can check my full breakdown on Australia economy outlook for 2025 here.

Beyond inflation, the AUD's trajectory is heavily influenced by labour market dynamics and consumer confidence, which serve as barometers of broader economic health. Global commodity trends, particularly in metals and energy—sectors where Australia holds significant trade stakes—are providing additional tailwinds. Fiscal policies geared toward economic resilience have also buoyed market sentiment, suggesting a cautiously optimistic outlook for the AUD in the near term.

AUDUSD H4 Chart

The changes on economic data, speculative positioning, and central bank policy expectations continues to shape currency trends globally. For the USD, its overvaluation narrative and stretched speculative positioning present significant resistance to further upward moves. In contrast, currencies like the CAD and AUD are navigating unique domestic and external challenges. For the CAD, inflation data and BoC policy are paramount, while the AUD balances domestic economic signals with external commodity-driven optimism.

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