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Euro Canadian Dollar Exchange Rate Remains Under Pressure Despite CAD Profit Taking

As inflationary pressure across the Eurozone struggled to pick up the mood towards the Euro remained bearish.

With inflation still some way short of the European Central Bank’s (ECB) target the chances of any shift towards hawkish monetary policy are distinctly limited.

As Tim Riddell, research analyst at Westpac, noted:

‘Praet and Draghi have repeatedly stated that the need for accommodative policy remains, despite strength in Eurozone data and surveys, and a very gradual and cautious path of change. Although markets are focusing upon the strength of surveys and activity data, the ECB remains concerned about Eurozone’s 18% underemployment/labour slack.’

A general uptick in market risk appetite also hampered EUR exchange rates on Thursday, as investors were inclined to favour higher-yielding assets over the single currency.

The mood towards the Euro could improve ahead of the weekend, though, if May’s Eurozone trade surplus widens.

Continued signs of strength within the currency union could give investors some incentive to buy back into the Euro, particularly if the appeal of the US Dollar remains limited in the near term.

Increased volatility is likely for the Euro Canadian Dollar exchange rate if the ECB bank lending survey flags up any particular causes for concern.

Profit Taking Reserves Canadian Dollar Gains

Following the Bank of Canada’s (BOC) highly anticipated interest rate hike the Canadian Dollar was unable to maintain its momentum.

This was largely due to investors engaging in a round of profit taking, even as the tone of BOC Governor Stephen Poloz pointed towards the central bank maintaining a rather hawkish outlook on monetary policy.

Persistent worries over oil also weighed on the commodity-correlated Canadian Dollar, with markets failing to take any particular encouragement from a larger decline in US crude inventories than forecast.

Even so, if the odds of the BOC delivering another rise in interest rates before the end of the year mount this could return the EUR CAD exchange rate to a sharper downtrend.

Ahead of the weekend, though, the appeal of the Canadian Dollar is unlikely to strengthen significantly thanks to its strong appreciation in anticipation of the BOC policy meeting.

However, a weaker raft of US data could give the ‘Loonie’ some support if the odds of the Federal Reserve pursuing a more aggressive pace of interest rate hikes seem to deteriorate further.

Current EUR CAD Interbank Exchange Rates

At the time of writing, the Euro Canadian Dollar exchange rate was slumped in the region of 1.4510. Meanwhile, the Canadian Dollar Euro exchange rate was making gains at 0.6888.