Euro Slides vs Canadian Dollar as Oil and Fed Bets Shift

Key Moments

Risk-Off Mood and Inflation Data Hit EUR/CAD

EUR/CAD continues to weaken, with the pair trading around 1.6030 after giving back the prior day’s gains during European hours on Monday. The cross is coming under renewed selling pressure as the Euro faces a combination of rising global risk aversion, higher energy prices, and intensifying expectations of further Federal Reserve tightening.

Market participants are positioning more defensively amid concerns over a drawn-out conflict in the Middle East. These geopolitical tensions have helped keep crude oil prices elevated, creating what is described as an inflationary shock for the global economy. This backdrop is proving unfavorable for the Euro, especially against commodity-linked currencies such as the Canadian Dollar.

US CPI Ups the Stakes for the Federal Reserve

Sentiment in currency markets is also being shaped by the latest US inflation figures. Data from the US Bureau of Labor Statistics showed that the US Consumer Price Index (CPI) increased by 0.4% on a month-on-month basis in August, pushing the 12-month rate to 3.4%. Core CPI, which excludes food and energy, rose 0.3% over the month, exceeding both the previous and expected 0.2% readings.

The stronger-than-anticipated inflation print is reinforcing expectations that the Federal Reserve may need to tighten policy further. According to the CME FedWatch tool, financial markets have now priced in an 87% probability of a quarter-point rate hike at the upcoming Fed meeting, a notable jump from 59% just one week earlier. This repricing is lending additional support to the US Dollar and contributing indirectly to Euro weakness.

ECB Monitoring Energy Shock and Policy Path

On the European side, policymakers are signaling that interest-rate decisions will remain data-dependent amid the latest energy market developments. European Central Bank (ECB) Governing Council member Gediminas Simkus stated on Monday that the possibility of monetary policy actions at every upcoming meeting cannot be ruled out. He underscored the need to closely evaluate energy prices ahead of the October policy meeting and added that December will serve as a natural point to reassess the broader economic outlook.

This cautious stance reflects growing uncertainty over how sustained high energy costs could affect inflation and growth in the Eurozone. For EUR/CAD, however, the policy signals from the ECB are being overshadowed by the comparatively stronger support the Canadian Dollar is drawing from the latest oil market disruptions.

Oil-Fueled Tailwind for the Canadian Dollar

The Canadian Dollar is receiving robust support as crude prices surge toward nearly four-month highs. The rally in oil has been amplified by a drone attack that led Saudi Arabia to shut down a major crude pipeline, a key route traditionally used to bypass the Strait of Hormuz. As a precautionary measure, operations on the East-West pipeline were suspended immediately following Thursday’s attacks, and authorities have not yet provided guidance on when flows will return to normal.

For a commodity-linked currency like the CAD, this combination of higher prices and supply concerns is providing a meaningful boost. Against this backdrop, the Euro is underperforming, leaving EUR/CAD under downside pressure.