Euro Slips Versus Canadian Dollar as Oil Rally Lifts CAD

Key Moments

EUR/CAD Under Pressure as Oil Strengthens

EUR/CAD continues to move lower for a second straight session, with the pair quoted around 1.6040 during European trading on Tuesday. The cross is weakening as the Canadian Dollar (CAD) benefits from firming crude oil prices, reinforcing its status as a commodity-linked currency.

Oil markets are firming as participants react to elevated uncertainty over global supply. The focus remains on Saudi Arabia’s East-West pipeline, which is still offline following drone attacks. With no clear indication of when flows will resume, traders are reassessing supply risks and supporting energy prices, indirectly boosting the CAD.

Canadian Inflation Steady, BoC Policy Seen on Hold

Economists at Royal Bank of Canada observe that “Canadian inflation held at 3% year-over-year in August, unchanged from July,” highlighting that the latest reading points to a stable headline pace even as underlying pressures continue to ease. In this context, RBC’s Abbey Xu notes that core metrics remain close to the Bank of Canada’s 2% objective, bolstering expectations that policy settings are likely to be maintained for a prolonged period.

According to this view, any change in the policy outlook will depend on how enduring the recent strength in oil prices turns out to be. Persistent energy price gains could influence inflation dynamics and, in turn, future BoC decisions, but for now the bias is toward an extended hold.

ECB Hawkish Tone Limits Euro Downside

Despite the current weakness in EUR/CAD, losses may be cushioned by support for the Euro (EUR) stemming from the European Central Bank’s policy stance. A number of ECB officials have recently emphasized ongoing upside risks to inflation, reinforcing expectations that further monetary tightening could be warranted.

This rhetoric follows the ECB’s latest move to lift its key policy rates by 25 basis points in line with prior expectations, coupled with signals that additional rate increases may still be needed. That combination has helped anchor market pricing around a more hawkish path.

Markets and Major Banks See Further ECB Hikes

Institutional views are increasingly converging around the prospect of more ECB tightening. Reports indicate that major banks, including Goldman Sachs, Citi, and Barclays, now anticipate another interest rate increase in December.

Market-based indicators are broadly in agreement. Data from LSEG show a 94% implied probability of a quarter-point hike in December. In addition, Citi projects one more rate increase that would extend into March 2027, underscoring expectations for a longer-lived restrictive stance.