While there is strong evidence that they do this, there is no answer to the “how” question. They probably have this sense of magnetoreception. Its active use, the so-called. geomagnetic navigation is observed in some animals, most often migrating (birds, bees, whales and turtles).
Currently, a group of retinal proteins called cryptochromes, is considered a receptor for magnetism in the body of an animal. However, this is an unconfirmed and heavily criticized hypothesis (many scientists believe that the Earth's magnetic field is too weak for cryptochromes to detect it). Research from China shows that the "magnetic sense" is the MagR protein that binds to both iron and cryptochrome. In a magnetic field, it behaves like a compass needle.
Magnetoreception in dogs has long been suspected but has never been tested to confirm its presence. If you look at the behavior of hunting dogs, they can get back to where they went in two ways.
In the first, known as tracking, the dog uses its olfactory abilities to find its own tracks. In the second, called by scientists "intelligence", tetrapods take a completely new path.
A few years ago Czech researchers from the Agricultural University CULS (esk zemdlsk univerzita v Praze) noticed unusual behavior of dogs during bowel movements and urination. For reasons incomprehensible from a scientific point of view, animals did this along a single north-south axis.
This would indicate that they can sense the Earth's magnetic field. Together with colleagues from German University UDE (Universitt Duisburg-Essen) they observed the behavior of 70 dogs of 37 breeds for two years. They published the results of their research in 2015 in the journal Frontiers of Zoology.
“Why dogs line up on this axis is still a mystery. Do they do it consciously, feeling the magnetic field with their senses? Or maybe they perceive them on a vegetative level, "feeling better", taking care of their needs in a certain direction, - wrote then zoologists.
A similar group of researchers from the same Czech university found evidence that the aforementioned canine "intelligence" is based on an additional sense of magnetoreception. To isolate this sixth sense, they installed GPS transmitters and sport cameras on 27 hunting dogs. Then they forced them to follow different routes in 62 woodlands. This lasted from 2014 to 2017.
In total, hunting dogs covered 600 different routes, first they chased the game, and then returned to their owners. Only those cases were analyzed where the returned dog was “scouting” and not using the scent.
It was noticed that when they returned to their guide, the first 20 meters the dogs started to run always on the north-south axis. It didn't matter what the person's position was in relation to this direction.
The study authors called it azimuth range. Scientists expect that during those first 20 meters, their internal compass will be adjusted. The forest was unknown, there were no smells either. None of them were blown away, and similar plants grew in all directions, effectively reducing the field of view.
The only constant and universal indicator was the Earth's magnetic field. For Czech scientists, this is proof that dogs must have used magnetoreception. They view their discovery much more broadly than canine ones.
“Geomagnetic navigation ability seems to be the most important missing piece in a complete understanding of mammalian spatial orientation,” states eLife.