EUR/CAD softens below 1.6300 ahead of Canadian CPI inflation release
- EUR/CAD edges lower to near 1.6275 in Monday’s early European session.
- ECB’s Rehn said the risk of inflation slowing shouldn’t be overlooked.
- Signs that activity had resumed at the Russian port of Novorossiysk on the Black Sea weigh on the commodity-linked CAD.
The EUR/CAD cross loses traction to around 1.6275 during the early European session on Monday. Nonetheless, the potential downside for the cross might be limited amid the cautious stance by the European Central Bank (ECB). The Canadian Consumer Price Index (CPI) inflation data for October will be the highlight later on Monday.
Many ECB policymakers indicated that there was no need to adjust interest rates given current economic conditions. ECB Governing Council Member Olli Rehn cautioned that the risk of slowing inflation should not be overlooked, though upside risks remain. Rehn emphasized the need for strong bank buffers and a vigilant policy stance.
Meanwhile, ECB policymaker and Governor of the Central Bank of Latvia Mārtiņš Kazāks said on Friday that there is no need to adjust interest rates in the current situation. The central bank will remain vigilant to any dramatic change and will adjust rates if necessary. Markets are now pricing in less than a 50% possibility of another cut by July 2026, and a very low 4% odds for the December 2025 meeting, according to Reuters.
Russia's Novorossiysk port resumed oil loadings on Sunday after a Ukrainian strike last week led to some damage and a suspension of operations for two days. The resumption of operations eases concerns about a disrupted oil supply and weighs on the Canadian Dollar (CAD), which is also heavily influenced by crude oil prices. It’s worth noting that Canada is a major oil exporter, and lower crude oil prices tend to have a negative impact on the CAD value.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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