The Euro (EUR) remained stronger against the Canadian Dollar (CAD) for the second consecutive day, with the EUR/CAD pair trading around 1.6080 during European hours on Monday [1]. This resilience in the Euro followed the release of the Eurozone Sentix Investor Confidence index, which rose significantly to 5.1 in September from 0.9 in August, marking a return to positive sentiment after five months of negative readings [1]. In contrast, Germany's Industrial Production data disappointed, falling 1.1% month-over-month in July versus expectations for a 0.3% gain, and declining 1.6% year-over-year after a 0.5% drop in the prior month [1].
Despite the weak German industrial output, the Euro found support from expectations of further monetary tightening by the European Central Bank (ECB). The ECB is widely anticipated to raise its key interest rates by 25 basis points at its upcoming policy meeting on Thursday, with Andrew Kenningham of Capital Economics stating that the ECB Governing Council looks certain to lift its deposit rate from 2.25% to 2.50% [1].
However, the potential for further gains in EUR/CAD may be limited as higher crude oil prices provide support to the Canadian Dollar. Energy prices surged following geopolitical tensions, including the US targeting three Iranian oil tankers in response to missile attacks against US Navy warships, and Tehran establishing a new restricted zone beyond the Strait of Hormuz, raising concerns about prolonged disruptions to Middle Eastern energy supplies [1].
Deutsche Bank analysts noted that risk markets lost momentum over the past week as investors faced another leg higher in energy prices, with Brent crude oil rising 7.80% last week to $96.28 per barrel, its highest in six weeks. This energy rally has reinforced concerns about persistent inflation pressures and weighed on risk assets [1].
According to the latest data, the Euro was the strongest against the US Dollar among major currencies today [1].
CONCLUSION
The Euro's strength against the Canadian Dollar is underpinned by improved Eurozone investor sentiment and expectations of ECB rate hikes, despite weak German industrial data. However, surging oil prices and geopolitical tensions are supporting the Canadian Dollar and weighing on risk assets, potentially capping further gains in EUR/CAD. Market participants remain focused on upcoming Eurozone GDP data and the ECB policy meeting for further direction.