The EUR/CAD cross gathers strength to around 1.6160 during the early European session on Friday. The Euro (EUR) edges higher against the Canadian Dollar (CAD) amid the differing approaches between the European Central Bank (ECB) and the Bank of Canada (BoC). Traders brace for the release of the Canadian employment report for January, which is due later on Friday.
The ECB on Thursday decided to keep the policy rates unchanged for the fifth consecutive meeting, with its key interest rate at 2.0%. During the press conference, ECB President Christine Lagarde said that the central bank would maintain its data-dependent and “meeting-by-meeting approach” and would not be “precommitting to a particular rate path.”
The Canadian central bank held its target for the overnight rate at 2.25% last week, but it warned to respond should the outlook change. “With heightened uncertainty, we are monitoring risks closely,” said BoC Governor Tiff Macklem. Markets anticipate the BoC may still have room for further rate reductions this year due to loosening labor market conditions and slowing inflation. This, in turn, could weigh on the Loonie and act as a tailwind for the cross.
Technical Analysis:
In the daily chart, EUR/CAD holds marginally above the 100-EMA at 1.6150, which has flattened after a mild uptick. The 20-period average embedded in the Bollinger Bands at 1.6173 caps the immediate rebound, maintaining a tight, sideways bias. Bollinger Bands drift lower with contained width as spot trades under the midline; a daily close above that average could open the path toward the upper band at 1.6283.
RSI at 48.97 is neutral, stabilizing after prior soft readings. Failure to reclaim the mid-band would keep pressure toward the lower Bollinger Band at 1.6064, with the 100-EMA acting as initial support; a decisive move back above the midline would improve momentum and shift focus to overhead band resistance.
(The technical analysis of this story was written with the help of an AI tool.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Source: https://www.fxstreet.com/news/eur-cad-price-forecast-keeps-sideways-bias-above-16150-canadian-employment-report-is-focus-202602060516
