EUR/CAD has increased for three consecutive days, reaching around 1.6200 during European hours. This movement comes despite a risk-averse environment due to a weaker US Dollar influenced by US–Greenland tensions.
The Euro’s future gains could be limited as the easing Eurozone Harmonized Index of Consumer Prices (HICP) suggests the ECB may maintain interest rates longer. Eurozone HICP inflation slowed to 1.9% in December 2025 from 2.1% in November, marking the first sub-2% reading since May. Core inflation fell to 2.3%, the lowest in four months.
Impact Of Oil Prices On CAD
EUR/CAD might continue rising as the Canadian Dollar faces difficulties with decreasing Oil prices, impacting Canada, the largest crude supplier to the US. West Texas Intermediate (WTI) crude has dipped to around $58.80 per barrel, with US–EU tensions affecting global demand.
Canada’s inflation rate increased to 2.4% in December 2025, surpassing market expectations and the BoC’s projection, leaving policy direction uncertain.
Tariffs are customs duties levied on imports to protect domestic industries and can be contentious. Donald Trump plans to impose tariffs on Mexico, China, and Canada, aiming to support US producers and reduce personal income taxes with the collected revenue.
The EUR/CAD cross is pushing towards 1.6200, and we see this as being driven more by Canadian Dollar (CAD) weakness than any fundamental Euro strength. The primary focus in the coming weeks should be the political risk to the CAD from potential US tariffs. This situation suggests positioning for further CAD underperformance.
European Central Bank’s Rate Decision
We view the Euro’s recent strength as temporary, mostly a reaction to a weaker US Dollar. With Eurozone inflation slowing to 1.9% in December 2025, the European Central Bank has a clear path to keep rates on hold for an extended period. This fundamentally caps the Euro’s upside, making it the passive currency in this pair’s move.
Although Canadian inflation rose to 2.4% in December 2025, we do not expect the Bank of Canada (BoC) to react hawkishly. Recent comments from BoC officials have emphasized that they will look past temporary price spikes to focus on the significant economic threat posed by trade uncertainty. This likely neutralizes any support for the CAD from the inflation data.
Adding to the pressure, the Canadian dollar is challenged by weakening oil prices, with West Texas Intermediate recently slipping below $58 to trade around $57.50 a barrel. As Canada’s largest export is crude oil to the US, falling energy prices directly undermine the CAD’s value. This trend is likely to continue as long as trade frictions cloud the outlook for global demand.
The decisive factor remains the US tariff plan, with Washington having now reportedly initiated a 30-day review for tariffs on Canadian auto parts and aluminum. Looking back at the 2018-2019 period, we saw that similar threats during trade renegotiations caused significant CAD depreciation. Therefore, using derivatives like call options to gain exposure to further EUR/CAD upside could be a strategy to consider, capturing potential gains while defining risk in a volatile political environment.
