Key Moments
- EUR/CAD pauses a three-day advance and trades near 1.6110 as the Canadian Dollar gains on stronger crude prices.
- US Treasury plans to double long-term note and bond buybacks in the next quarter, a move expected to pressure the US Dollar and underpin the Euro.
- German producer prices rise 3.0% year-on-year in July, beating the 2.7% consensus and marking the fastest annual increase since April 2023.
Oil-Driven CAD Strength Weighs on EUR/CAD
EUR/CAD has ended its three-session advance and is fluctuating around 1.6110 during European trading on Thursday. The cross is under pressure as the commodity-linked Canadian Dollar benefits from a renewed upswing in crude oil prices.
The latest jump in crude is being linked to heightening tensions in the Middle East and stalled talks between the United States and Iran. The confrontation has extended to the strategically important Strait of Hormuz. However, US President Donald Trump stated that oil shipments are still passing through the strait and indicated that discussions with Tehran remain a future possibility.
US Treasury Buybacks Support a Softer Dollar and the Euro
Despite the Canadian Dollar’s current advantage, EUR/CAD could find support from developments favoring the Euro. The currency is drawing backing from a shift in US Treasury operations that is expected to increase dollar liquidity.
The Treasury plans to double its buyback limits for long-term notes and bonds in the coming financial quarter. This adjustment is anticipated to channel substantial liquidity into markets via the Treasury General Account, exerting downward pressure on the US Dollar and indirectly supporting alternatives such as the Euro.
Foreign Demand for Eurozone Assets Remains Robust
Analysts at ING emphasize that capital flows into the Eurozone continue to look constructive. They note that “behind the scenes, foreigners are also buying a lot of eurozone debt and equities.” According to ECB data released yesterday, foreign investors “have bought around €1.1tr of eurozone securities over the last 12 months,” highlighting strong external appetite for Eurozone instruments and reinforcing the broader case for Euro diversification.
| Flow Indicator | Figure / Description |
|---|---|
| Foreign purchases of Eurozone securities (last 12 months) | Approximately €1.1tr |
Energy Prices and Inflation Keep ECB Hawkish Bias Intact
Regional macroeconomic conditions are also lending structural support to the Euro. A sharp rise in European natural gas prices, linked to supply disruptions originating in the Middle East, is maintaining elevated inflation risks. These dynamics are seen as likely to keep pressure on the European Central Bank to implement further interest rate increases this year.
German Producer Prices Surprise to the Upside
Germany’s producer price data for July added to the inflation narrative. Producer prices climbed 3.0% year-on-year, exceeding the market expectation of 2.7% and registering the fastest annual increase since April 2023. On a monthly basis, prices rebounded by 1.1%, pointing to persistent underlying price pressures within the Eurozone.
| Germany Producer Prices – July | Figure |
|---|---|
| Year-on-year change | 3.0% (vs. 2.7% expected) |
| Monthly change | 1.1% |
| Fastest annual pace since | April 2023 |
UBS: Limited Market Impact From PPI Beat
Economists at UBS acknowledge that the latest German producer price figures “were higher than consensus,” but they place the data in a more muted context, remarking that “very few economists bother to forecast this data.” Their characterization suggests that, despite the upside surprise, the release is unlikely to significantly alter prevailing market narratives, with producer prices viewed more as a secondary data point than a primary driver of positioning.
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