EUR/CAD slips to near 1.6200 as Canadian Dollar gains on Oil boost
- EUR/CAD struggles as the Canadian Dollar strengthens on higher WTI after Kazakhstan halted output at two major fields.
- The BoC is expected to hold rates on January 28 as Canada’s CPI inflation rose to 2.4% in December.
- Trump reiterated Greenland ambitions as Europe threatens tariffs, with the EU signaling duties on US goods.
EUR/CAD inches lower after three days of gains, trading around 1.6200 during the European hours on Wednesday. The currency cross struggles as the commodity-linked Canadian Dollar (CAD) receives support amid higher Oil prices. It is worth noting that Canada is the largest crude exporter to the United States (US).
West Texas Intermediate (WTI) Oil price extends its winning streak for the fourth consecutive day, trading around $59.60 per barrel at the time of writing. Crude Oil prices gain on a temporary halt in output at two large fields in Kazakhstan.
OPEC+ (Organization of the Petroleum Exporting Countries and its allies) producer Kazakhstan suspended production at the Tengiz and Korolev oilfields on Sunday due to power distribution issues, with output potentially remaining offline for another seven to ten days, according to Reuters sources.
Market analysts largely expect the Bank of Canada (BoC) to hold the interest rates steady for the upcoming January 28 decision following the December inflation data. The central bank is expected to keep the rates unchanged through most of 2026 due to a mixed economic picture.
Canada’s annual Consumer Price Index (CPI) inflation climbed to 2.4% in December from 2.2% in November. The monthly CPI fell 0.2% in December, compared to an increase of 0.1% in the previous reading. Meanwhile, the core inflation measures, which the Bank of Canada (BoC) closely monitors, continued to moderate in December.
The Euro (EUR) gained ground against its major, supported by stronger-than-expected German economic data. Germany’s ZEW Economic Sentiment Index surged to 59.6 in January, its highest since July 2021 and well above the 50 forecast, signalling optimism for a 2026 economic turnaround despite uncertainty over US trade policy.
Traders remain conscious amid increased trade war concerns on the United States (US)-European Union (EU) issue. US President Donald Trump said there is “no going back” on his ambitions regarding Greenland, alongside earlier threats to impose new 10% tariffs on eight EU countries, fueling concerns over slower economic growth. The European Parliament plans to suspend approval of the US trade deal agreed in July, with the decision set to be announced on Wednesday in Strasbourg, France, signaling an escalation in US–Europe tensions. Trump is scheduled to meet various stakeholders to discuss Greenland at the World Economic Forum in Davos on Wednesday.
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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