Euro weakens as Canadian Dollar receives support from higher oil prices

EUR/CAD pares its recent gains from the previous day, trading around 1.6000 during the European hours on Tuesday. The currency cross depreciates as the commodity-linked Canadian Dollar (CAD) holds ground against the Euro (EUR) due to 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 gains for the fourth consecutive day, trading around $102.20 per barrel at the time of writing. However, Crude oil prices may decline amid easing Middle East concerns after reports that United States President Donald Trump said on Monday that he has ordered a pause on a planned US military attack on Iran scheduled for Tuesday. This decision reportedly followed appeals from the leaders of Qatar, Saudi Arabia, and the United Arab Emirates. However, Trump also warned that the US remains prepared to go forward with a full, large-scale assault on Iran if a deal is not reached.

Canada’s March inflation data had already highlighted the impact of elevated energy prices on domestic consumer prices, keeping markets to renewed upside inflation risks. Canada’s annual inflation rate rose to 2.4%, matching the highest level in one year. Still, the Bank of Canada (BoC) signaled at its latest meeting that it does not see high risks of energy-driven inflation becoming entrenched and opted to leave interest rates unchanged.

The downside of the EUR/CAD cross could be restrained as the Euro (EUR) may gain ground due to hawkish comments from European Central Bank (ECB) policymakers. ECB Governing Council member Yannis Stournaras said over the weekend that a modest ECB interest-rate increase could temper inflation without causing economic damage.

The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting.