Euro remains steady vs Canadian Dollar ahead of key ECB decision

• EUR/CAD trades without a clear direction on Thursday as investors await the European Central Bank’s monetary policy decision.
• Markets widely expect a 25-basis-point rate hike, putting the future monetary policy path in focus.
• Persistent inflationary pressures in the Eurozone could encourage Christine Lagarde to maintain a hawkish stance.

EUR/CAD trades around 1.6060 on Thursday at the time of writing, virtually unchanged on the day. The cross consolidates as investors refrain from taking large positions ahead of the European Central Bank’s (ECB) monetary policy decision, due at 12:15 GMT.

The ECB is widely expected to raise its Deposit Facility Rate by 25 basis points (bps) to 2.5%. With such a decision largely priced in by markets, attention should primarily focus on the monetary policy statement and any guidance regarding the future path of interest rates.

The press conference by ECB President Christine Lagarde will therefore be closely watched. Investors will look for clues on whether the central bank believes further rate hikes are necessary to contain price pressures or whether it is considering slowing its monetary tightening cycle.

The latest inflation data reinforce the importance of these signals. Annual inflation in the Eurozone accelerated to 3.3% in August from 2.9% in the previous month, keeping pressure on the ECB to maintain a restrictive monetary policy stance.

Against this backdrop, the reaction of the Euro (EUR) should primarily depend on Christine Lagarde’s message regarding the next steps for monetary policy. A hawkish stance that leaves the door open to further rate hikes could support the single currency and push EUR/CAD higher, while indications that the tightening cycle is nearing its end could weigh on the pair.

CAD holds firm as US trade measures leave fundamentals in focus

Strategists at Scotiabank note that the Canadian Dollar has shown limited sensitivity to the latest flare-up in US–Canada trade tensions, remarking that “if the White House does have a beef with the low CAD, some further clarity is required.” They point out that “news that the president was banning some Canadian dairy, alcohol and motorcycle goods has had little impact on the CAD,” even though “these latest US measures come into force on September 29th.” Instead, Scotiabank emphasizes that “underlying CAD fundamental drivers continue to improve.”