The Euro Canadian Dollar (EUR CAD) exchange rate climbed by around a cent during trading yesterday, reaching a new two-week high as a slowdown in oil prices prompted a fall in the ‘Loonie’.
After holding steady at the start of the week, crude prices are struggling stay afloat today as rising US supplies threatens to push prices below $54 a barrel.
US stockpiles are set to rise for the eighth consecutive week later this afternoon, with analysts predicting the surplus will climb by nearly three million barrels.
The jump looks to further dent efforts by the Organization of the Petroleum Exporting Countries (OPEC) to reduce global stockpiles as two months into a six month programme by its members to cut production, the impact on crude prices appear to have been minimal.
As Canada’s largest sector, accounting for 19% of all exports, the value of the Canadian Dollar is closely tied to movement in the oil market.
The EUR CAD exchange rate also rose ahead of the Bank of Canada’s (BOC) monetary policy meeting this afternoon as the central bank is widely predicted to hold interest rates at 0.5%
Markets are likely to focus on comments from BOC Governor Stephen Poloz following the meeting as they look for clues about future policy direction.
Investors are particularly interested to learn how the bank may react to potential US policy changes under Trump, especially in regards to border adjustment tax and tax cuts which could negatively impact Canada’s economy.
Meanwhile the Euro has also been strengthened this morning by the release of the Eurozone’s latest Manufacturing PMI.
Markit who compiled the data, reported that manufacturing activity rose from 55.2 to 55.4 in January and although this was slightly down from initial estimates that it would rise to 55.5, it still led to the sector reaching a 70-month high.
Chris Williamson, chief business economist at IHS Markit commented;
‘Companies clearly expect the good times to persist. This year has seen firms more optimistic about the future than at any time since the region’s debt crisis. Companies are reporting stronger demand in both home and export markets, with the weakened euro providing an accompanying tailwind to help drive sales.’
Germany also released its latest employment data with jobless numbers falling by 14,000 in February.
The drop was higher than expected but did not translate to a fall in the overall unemployment rate which held at a 36-year low of 5.9%.
While the Euro Canadian Dollar exchange rate began to slide from its best levels earlier this morning as profit-taking caught up with the sudden spike, expectations that German Inflation figures will deliver another strong performance this afternoon could support another rise in the single currency.
Economists expect that Germany’s inflation rate will hit 2.1% in February, up from 1.9% the month before and reaching a new three-year high.
The jump will also likely led to increased pressure from German lawmakers on the European Central Bank to raise interest rates.
Looking past the BOC rate decision this afternoon there are concerns that the Canadian Dollar could also be driven lower on Thursday as economists forecast that domestic growth fell in the fourth quarter of 2016.
Canada’s GDP is expected to have softened in the three months leading to December as the uncertainty of the US elections prompted a downturn in activity across many of the nation’s sectors.
Current Interbank Exchange Rates
At the time of writing the EUR CAD exchange rate was trending around 1.40 and the CAD EUR exchange rate was trending around 0.71.