Euro drops against Canadian Dollar amid wave of protests in Europe
- EUR/CAD opened at a bearish gap as violent cost-of-living protests swept across France.
- Oil prices fell after US President Trump paused Russian fuel export sanctions, pressuring CAD.
- Markets expect the Bank of Canada to hold interest rates steady at its October meeting.
EUR/CAD remains in negative territory after experiencing volatility, trading around 1.5800 during European hours on Monday. The currency cross opened at a bearish gap as the Euro (EUR) faces headwinds from widespread unrest in France.
Speaking in a televised national address on Sunday following one of the country's most severe days of civil unrest in recent years, French President Emmanuel Macron condemned the "shocking" violence stemming from protests over the rising cost of living. France’s demonstrations were the largest among a broader wave of protests that also impacted Belgium, Italy, and Portugal.
Meanwhile, the EUR/CAD cross faces volatility as the commodity-linked Canadian Dollar (CAD) faces potential pressure from declining crude oil prices. Oil slipped following US President Donald Trump's decision on Friday to sign an executive order pausing key sanctions and tariffs on Russia under the Graham Act, a move expected to boost Russian fuel exports. The temporary waiver pauses restrictions Trump had signed into law just last month amid Congressional pressure over Russia's war in Ukraine, with Secretary of State Marco Rubio noting that the administration will take up to 60 days to evaluate the economic impact of the decision.
Despite the headwinds for crude, traders expect the Bank of Canada (BoC) to keep interest rates on hold at its upcoming October meeting, maintaining the pause it has observed throughout the year, before potentially considering a rate hike in December. With underlying inflation remaining close to the BoC’s 2% target and growing slack in the domestic labor market, market participants see little justification for an immediate interest rate increase.
Canada inflation seen steady as RBC looks for CPI to hold at 3%
Economists at Royal Bank of Canada expect Canadian inflation to remain stuck at the current plateau, projecting that the headline Consumer Price Index will “hold at 3% year-over-year in September for a third consecutive month.” This anticipated steady reading underscores their view that, while price pressures persist, overall inflation is no longer accelerating on a headline basis.
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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