EUR/CAD Rises Amid Strengthening Euro

EUR/CAD has seen an increase for the second consecutive day, trading around 1.6230 during European hours on Friday. This uptick is primarily due to a strengthening euro (EUR) ahead of the upcoming release of the HCOB Purchasing Managers’ Index (PMI) for both Germany and the eurozone.

However, the euro might encounter some challenges. Easing inflation signals that the eurozone is inching closer to price stability. This has led traders to estimate about a one-in-three chance of the European Central Bank (ECB) raising interest rates in July.

On the other hand, the EUR/CAD pair could continue to rise as the Canadian dollar (CAD), which is often linked to commodities, struggles with declining global oil prices. Recently, oil prices have dropped, attributed to the easing geopolitical tensions in the Middle East, especially following various diplomatic strides made between the United States and Iran.

The negotiations in Doha, facilitated by Qatar and Pakistan, effectively reduced the geopolitical risk premium that had been keeping energy prices elevated. For Canada, these lower oil prices are suppressing inflation driven by energy, which in turn raises market expectations that the Bank of Canada (BoC) might lean towards a more accommodating monetary policy in the future.

Despite the broader context, some positive signs are emerging from Canada’s manufacturing sector. The S&P World Manufacturing Purchasing Managers Index showed a slight increase, moving from 52.9 in May to 53 in June. This suggests that manufacturing activity is still growing, albeit modestly. Yet, this progress isn’t enough to counteract the prevailing issues in the weak oil market. Consequently, the Canadian dollar remains susceptible to shifts against the US dollar.