With the ECB appearing on course to extend its quantitative easing program before the end of the year the Euro Canadian Dollar exchange rate has extended its downtrend.
- ECB President Draghi boosted odds of further policy easing – Dovish commentary weakened Euro demand
- Canadian Dollar demand limited as oil prices softened – Hopes of production deal waver on high output levels
- EUR CAD exchange rate volatility forecast on Canadian inflation data – Higher inflationary pressure to encourage neutral BOC policy bias
- Eurozone political risk expected to weigh on Euro exchange rates – Rising populism to put pressure on single currency
Although oil prices have remained volatile the outlook of the Canadian Dollar has remained optimistic ahead of the latest domestic Consumer Price Index report.
Euro Canadian Dollar Exchange Rate Trended Lower on Dovish Draghi Comments
The Euro (EUR) has been under sustained pressure in the wake of the US presidential election, particularly as the unexpected victory of Donald Trump raises worries over the rise of populism and mounting political risk within the Eurozone itself. Although the Eurozone Consumer Price Index was confirmed to have ticked higher on the year in October this failed to offer the single currency a particular rallying point.
Market speculation continues to point towards the European Central Bank (ECB) extending its quantitative easing program in December, a prospect supported by the latest commentary from President Mario Draghi. In a speech at the European Banking Congress Draghi noted that:
‘Even if there are many encouraging trends in the Euro area economy, the recovery remains highly reliant on a constellation of financing conditions that, in turn, depend on continued monetary support.’
A bullish US Dollar (USD) has also weighed on the commodity-correlated Canadian Dollar (CAD), with oil prices continuing to flounder. While there have been increasing hopes of an imminent deal between producers to tackle the global oversupply glut, Brent crude has trended lower in the region of US$45. With US stockpiles and OPEC output both rising, prices seem set to remain weaker for longer; a prospect that could offer some support to the Euro Canadian Dollar (EUR CAD) exchange rate.
Canadian Dollar (CAD) Predicted to Extend Gains on Stronger Inflation Data
Ahead of the weekend the Canadian Dollar could be bolstered by the domestic Consumer Price Index report for October. Forecasts point towards a moderate increase in inflationary pressure from 1.3% to 1.5%, a result which would seem to bode well for the Canadian economy. Further progress towards the 2% inflation target would cement the Bank of Canada’s (BOC) more neutral policy outlook, giving investors greater reason to favour the ‘Loonie’. On the other hand, any disappointment could prompt the Canadian Dollar to return to a weaker footing as market risk appetite remains decidedly fragile at this juncture.
However, with Canadian retail sales expected to have increased markedly on the year in September the EUR CAD exchange rate may struggle to find particular traction over coming days. Although the expectation of imminent Fed monetary tightening may put downside pressure on the Canadian Dollar the strong fundamentals of the domestic economy are likely to limit any ‘Loonie’ selling.
Eurozone Political Risk Forecast to Limit EUR CAD Exchange Rate Strength
Worries over the outcome of the upcoming Italian constitutional referendum are likely to remain a drag on the single currency in the near future, given that the polls have signalled an increasingly tight vote. The outlook of the currency union could also be challenged by developments in Greece, given that German Finance Minister Wolfgang Schäuble has poured cold water on the possibility of debt relief for the recovering Hellenic nation. Signs of disunity could limit the appeal of the Euro, particularly as the political risk premium looks set to mount into 2017 as German and French elections approach.
November’s raft of Eurozone PMIs could prompt a more bullish trend for the EUR CAD exchange rate, providing that the domestic economy shows further signs of robustness. Expectations for the data are somewhat mixed, though, with German economic activity predicted to have moderated even as the French economy continued to pick up. Nevertheless, markets are likely to focus on the outlook of the Eurozone’s powerhouse economy, as weakness in Germany suggests that wider momentum is also likely to stall.
Current Interbank Exchange Rates
At the time of writing, the Euro Canadian Dollar (EUR CAD) exchange rate was trending lower at 1.43, while the Canadian Dollar Euro (CAD EUR) pairing was making gains in the region of 0.69.