Euro holds gains against Canadian Dollar despite weak German Retail Sales data
- German Retail Sales missed expectations, but market focus shifts to upcoming August inflation data.
- Higher crude prices could back the Canadian Dollar after the US rejected easing Iranian sanctions.
- Gains in oil were capped by recovering Middle East exports and planned US SPR releases.
EUR/CAD inches higher after posting modest losses in the previous day, trading around 1.6100 during the European hours on Wednesday. The currency cross gains support as the Euro (EUR) remains resilient following mixed German consumer spending data for August.
German Retail Sales grew 1.3% month-on-month (MoM), falling short of the estimated 2.0% expansion, though July's sharp contraction was revised upward to -3.2% from -3.4%. On an annualized basis, Retail Sales contracted by 0.4% in August following a 2.5% drop in July.
Looking ahead, market focus shifts toward the upcoming German Unemployment Change for August and the preliminary Harmonized Index of Consumer Prices (HICP) data for September, where price pressures are projected to accelerate to 3.1% year-on-year from 2.9% in August.
Meanwhile, further upside for the EUR/CAD cross could be capped by strength in the commodity-linked Canadian Dollar (CAD), which draws support as oil prices have recovered their daily losses. Crude gained momentum after US President Donald Trump denied willingness to ease sanctions on Iran despite Qatar's push for peace talks.
However, gains in crude oil eventually eased as Middle Eastern supply flows improved, with regional 10-day average exports recovering to 17.5 million barrels per day, 98% of pre-war levels, supported by Saudi Arabia resuming exports through its East-West pipeline at half capacity and ongoing covert shipping through the Strait of Hormuz. Additional downward pressure on oil stems from the US government's plan to release up to 40 million barrels from the Strategic Petroleum Reserve (SPR), alongside industry reports showing a 1-million-barrel increase in US crude inventories last week.
Canada’s GDP rebound shows signs of fatigue in Q3
Economists at NBC argue that “this morning’s GDP report confirms that the Canadian economy’s rebound lost some momentum in the third quarter,” even as the latest data stop short of signaling an outright stall. They highlight that Statistics Canada’s “preliminary estimate points to a 0.2% increase in GDP in August,” suggesting that activity is still expanding, albeit at a more subdued pace than in the preceding months.
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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