EUR/CAD falls to near 1.5850 due to higher Oil prices
- EUR/CAD weakens as higher crude prices boost the commodity-linked Canadian Dollar.
- WTI climbs as Middle East oil and gas flows are disrupted, notably through the Strait of Hormuz.
- ECB’s Villeroy noted the central bank is closely monitoring energy markets amid Middle East tensions.
EUR/CAD resuming its losing streak after a flat session, trading around 1.5850 during the European hours on Thursday. The currency cross struggles as the commodity-linked Canadian Dollar (CAD) receives support from higher crude Oil prices, given the status of the largest crude exporter to the United States (US).
West Texas Intermediate (WTI) Oil climbs for the third successive session, trading around $75.00 per barrel at the time of writing. Crude Oil prices advance as supply disruptions continue amid the ongoing Middle East conflict.
US and Israeli strikes on Iran have heightened regional tensions, triggering Iranian retaliatory attacks on energy infrastructure and disrupting key Middle East Oil and gas flows, especially through the Strait of Hormuz, which accounts for roughly 20% of global oil and LNG supply.
The EUR/CAD cross depreciates as the Euro (EUR) weakens ahead of January’s Eurozone Retail Sales data release later in the day. The annual Eurozone Retail Sales are expected to increase by 1.7% in January, following the 1.3% rise in December, while the monthly figure is expected to come at 0.3%, against the previous 0.5% decline.
European Central Bank (ECB) Governing Council member and Bank of France Governor François Villeroy de Galhau said the ECB is closely monitoring energy markets amid the Middle East war. Villeroy noted that the conflict’s duration will shape its impact on prices but sees no reason at present for the ECB to raise interest rates.
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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