EUR/CAD trades around 1.6100 after paring recent losses
- EUR/CAD trims recent losses as the commodity-linked Canadian Dollar weakens amid softer Oil prices.
- Traders assess fallout from the US attack on Venezuela, weighing risks to regional crude supply.
- The Euro could find support against major peers amid cautious sentiment over the ECB policy outlook.
EUR/CAD remains in the negative territory after paring daily losses, trading around 1.6100 during the European hours on Monday. The currency cross pares recent losses as the commodity-linked Canadian Dollar (CAD) struggles amid weaker Oil prices. West Texas Intermediate (WTI) Oil price falls more than 1%, trading around $56.50 per barrel at the time of writing.
Traders evaluate the fallout from the US attack on Venezuela, with markets weighing risks to regional crude supply. However, some analysts expect limited disruption, noting Venezuela produces under 1 million barrels per day, less than 1% of global output.
The Bank of Canada’s (BoC) December meeting minutes indicate that policymakers are growing more confident in the economy’s resilience, while remaining cautious amid unusually high uncertainty. The Governing Council highlighted trade policy, particularly the upcoming CUSMA review period in July, as a key risk to the outlook, alongside uncertainty over how the economy adjusts to structural shifts in global trade.
The EUR/CAD cross may further gain ground as the Euro (EUR) could find support against its major peers on the cautious sentiment surrounding the European Central Bank (ECB) policy outlook. The ECB kept interest rates unchanged in December 2025 and signaled they are likely to remain on hold for an extended period.
ECB President Christine Lagarde said after keeping rates steady in December 2025 that heightened uncertainty makes it difficult to offer clear forward guidance on future policy decisions.
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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