The Euro (EUR) has advanced against the Canadian Dollar (CAD) for the second consecutive day, trading around 1.6120 during European hours on Wednesday, as the CAD faces pressure from declining oil prices and heightened expectations of an ECB rate hike this month [6]. The Euro's upward momentum is further supported by hot Eurozone inflation data for August, which has increased the likelihood of an ECB rate hike in September. Commerzbank notes that the renewed surge in inflation above 3% will likely force the ECB to raise rates, although underlying data points to moderation in economic and labor market growth [6]. ING analysts observe that higher energy prices are feeding directly into ECB tightening expectations, with another 80bp of tightening currently priced by next summer, reflecting markets' anticipation of a more extended tightening cycle as energy-related cost pressures persist [6].
Meanwhile, the Canadian Dollar has been underperforming, particularly against the Japanese Yen, as shown in the daily currency heat map [1]. ING's Francesco Pesole expects the Bank of Canada (BoC) to keep rates on hold at 2.25%, seeing very low risk of a surprise hike despite firmer headline CPI and solid growth. He warns that trade tensions with the US pose deep risks for Canada, and combined with a bullish Dollar view, sees USD/CAD potentially extending higher toward 1.400 this month [2]. The BoC is expected to maintain its stance, with markets pricing in 27bp of tightening by the January meeting, primarily borrowed from the USD curve [2].
Technical analysis shows USD/CAD consolidating above the nine-day EMA at 1.3882 and capped by the 50-day EMA at 1.3949, signaling a neutral near-term bias. A break above the 50-day EMA would strengthen the bullish bias and support the pair to explore the region around the nearly 17-month high of 1.4248, recorded on June 24, 2026 [1]. On the downside, a pullback toward the descending channel could revive bearish bias and put downward pressure on USD/CAD to test the descending channel bottom around 1.3670 [1].
Market sentiment remains cautious, with the FXS Fed Sentiment Index slipping by 0.42 points to 128.86, signaling a modest pullback in perceived hawkishness but still firmly above the neutral 100 mark. Fed Governor Michael Barr's remarks reinforce upside risks to rates, supporting the Dollar, especially if incoming data fail to confirm disinflation [1].
The Euro was the strongest against the New Zealand Dollar, while the Canadian Dollar was the weakest against the Japanese Yen, according to the latest currency heat map [6][1].
CONCLUSION
The Euro's strength against the Canadian Dollar is driven by expectations of an ECB rate hike and weaker CAD performance amid lower oil prices and trade risks. While the BoC is expected to keep rates steady, market pricing suggests some tightening ahead, but the CAD remains vulnerable. Overall, the market is positioning for further Euro gains and potential USD/CAD upside, with sentiment favoring currencies backed by hawkish central bank outlooks.