The Euro Canadian Dollar (EUR CAD) exchange rate rallied late on Thursday as markets speculated about the possibility of the European Central Bank (ECB) tightening monetary policy by the end of the year.
Market bets that the bank will raise deposit rates in December spiked on Friday, with odds jumping from 60% to 80% overnight following hawkish comments from an ECB policymaker.
Ewald Nowotny, the Austrian representative on the central bank council told German Newspaper Handelsblatt that, ‘The ECB could also raise the deposit rate earlier than the prime rate’ as he suggested that the American model of raising interest rates may not translate well to Europe.
‘There is the American model to end the bond purchases first. Whether this model can be applied to Europe on a like-for-like basis would need to be discussed. In the US the inflation rate and the capacity utilisation is much higher than in the euro zone. Europe is not there yet.’
Nowotny appeared confident that the ECB’s quantitative easing programme would run its full course until December however, rejecting predictions from economists that the bank may be tempted to slow the rate of bond purchases earlier than intended.
The comments followed an uncharacteristically hawkish speech from ECB President Mario Draghi a week earlier following the bank’s latest policy meeting, with Draghi claiming that the Eurozone was no longer at risk of deflation.
Euro gains were muted somewhat this morning however by the release of the latest Eurozone Trade Balance.
Eurozone trade figures plummeted at the start of the year, tumbling from a surplus of €28.1bn to a deficit of €0.6bn, with the reading showing its first contraction since 2014.
However with exports rising , the single currency’s losses were minimal.
Meanwhile, the Canadian Dollar ceded ground on Thursday as the recent rally in oil prices came to an abrupt halt.
Crude prices retreated as the Organization of the Petroleum Exporting Countries’ (OPEC) production cuts came under increased scrutiny as analysts questioned if they were having any real impact on the global surplus.
Jeffrey Halley, senior market analyst at OANDA brokerage said;
‘Much talk has been made of OPEC, non-OPEC compliance, but the fact is, that when you dig into the numbers, only Saudi Arabia has been pulling its weight.’
Concerns have also been raised about the ability to increase prices at a time when consumption in the world’s largest oil market is in decline.
With US consumers increasingly looking to more fuel efficient options for getting around and the rising prominence of electric car manufactures like Tesla, observers are suggesting that oil producers will have to look elsewhere for buyers.
Looking ahead the Euro Canadian Dollar exchange rate is likely to rally further this afternoon following the release of Canada’s latest manufacturing figures as sales are expected to have plummeted at the start of the year, sliding from 2.3% to -0.4% in January.
However the single currency could retreat in the coming week as EUR investors grow concerned ahead of the start of French elections next month as far-right candidate Marine Le Pen continues enjoying substantial support in recent polls.
Current Interbank Exchange Rates
At the time of writing the EUR CAD exchange rate was trending around 1.43 and the CAD EUR exchange rate was trending around 0.69.