EUR/CAD holds losses near 1.6150 despite lower Oil prices, easing US-EU tensions
- EUR/CAD may rise as the commodity-linked Canadian Dollar could struggle amid lower Oil prices.
- WTI struggles as oversupply concerns offset risks, with the IEA warning global supply will exceed demand this year.
- The Euro may strengthen as tariff war fears ease after Trump signaled stepping back from tariffs on Europe.
EUR/CAD remains in the negative territory after registering modest losses in the previous session, trading around 1.6160 during the European hours on Thursday. The downside of the currency cross could be capped as the commodity-linked Canadian Dollar (CAD) may face challenges on lower Oil prices, given Canada’s status as the largest crude exporter to the United States (US).
West Texas Intermediate (WTI) Oil price edges lower after four days of gains, trading around $60.40 per barrel at the time of writing. Oil prices struggle as supply risks are levelled by oversupply concerns, with the International Energy Agency (IEA) reiterating that global supply will significantly exceed demand this year despite a modest upgrade to demand growth. Industry data also showed the United States (US) crude inventories rose by about 3 million barrels last week.
Traders will likely observe Canada’s monthly Retail Sales data due on Friday, with expectations of 1.2% increase in November after 0.2% decline in October. Meanwhile, Retail Sales ex Autos may increase by 1.4%, against the 0.6% decline.
The EUR/CAD cross may gain ground as the Euro (EUR) may gain ground amid easing concerns over the tariff war between the United States (US) and the European Union (EU). US President Donald Trump said he would step back from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland.
President Trump also noted that the United States and the North Atlantic Treaty Organization (NATO) had “formed the framework of a future deal regarding Greenland.” However, he did not outline the parameters of the so-called framework, and it remained unclear what the agreement would entail.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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