Euro remains stronger against Canadian Dollar as oil prices ease

EUR/CAD edges higher after posting modest losses in the previous day, trading around 1.5960 during the European hours on Wednesday. The currency cross holds ground as the commodity-linked Canadian Dollar (CAD) struggles amid lower oil prices. It is important to note that Canada is one of the world's largest oil producers and exporters, sending the vast majority of its supply to the United States (US); changes in oil prices impact Canada's export revenues and terms of trade.

West Texas Intermediate (WTI) oil price halts its four-day winning streak, hovering around $102.80 per barrel at the time of writing. However, Crude oil prices hold losses despite ongoing supply concerns following the latest threat from US President Donald Trump of resuming military strikes on Iran within two or three days to force a deal ending the war, following a brief pause after a new proposal from Tehran.

On Tuesday, Statistics Canada reported that the annual inflation rate accelerated to 2.8% in April from 2.4% in March, largely driven by higher gasoline prices. Despite the pickup, the reading came in below market forecasts of 3.1%. The monthly headline inflation rose by 0.4%, slowing down from the 0.9% increase seen in the previous month. Meanwhile, preferred measures of core inflation cooled, supporting the Bank of Canada’s (BoC) view that energy-driven price pressures may eventually fade, and easing broader market concerns over further domestic interest rate hikes.

The upside of the EUR/CAD cross could be limited as the Euro (EUR) may find some support from hawkish commentary from European Central Bank (ECB) policymakers. ECB Governing Council member Martin Kocher warned that a June rate hike is unavoidable if the Hormuz Strait remains closed, noting that a prolonged conflict will push eurozone inflation materially higher. Bundesbank President Joachim Nagel echoed this sentiment, stating that the ECB is moving away from its baseline scenario and hinting that action may be required in June.

According to a Reuters survey administered between May 8 and May 13, an overwhelming 85% majority of polled economists, specifically 59 out of 70 participants, forecast that the ECB will elevate its key deposit rate by 25 basis points, bringing it to a level of 2.25% during their upcoming June gathering. This consensus represents a dramatic surge in hawkish expectations when contrasted with the sentiment recorded just before the April policy meeting.