EUR/CAD stays above 1.6250 due to cautious ECB outlook

EUR/CAD steadies as the Euro receives support from the ECB's cautious tone.
ECB’s Nagel said that while food inflation remains stubborn, the Euro trading around $1.16 is not a cause for concern.
The commodity-linked CAD struggles as Oil prices weaken.

Akhtar Faruqui FXStreet

EUR/CAD moves little after registering modest gains in the previous session, trading around 1.6260 during the Asian hours on Tuesday. The currency cross may regain its ground as the Euro (EUR) gains support on expectations that the European Central Bank (ECB) has finished cutting interest rates. Markets expect that the ECB will hold its deposit rate this year and see no change by the end of next year. Traders now look forward to the release of the final German Q3 GDP for some impetus.

ECB Governor and Deutsche Bundesbank President Joachim Nagel spoke at the Frankfurter Impulse event in Frankfurt on Monday, claiming that although food inflation remains stubborn, the current level of the Euro at $1.16 is not a cause for concern. He noted that the central bank is also monitoring the strong rise in service prices, noting that December projections will offer clearer insight into whether the current monetary policy stance remains appropriate.

Additionally, the EUR/CAD cross may also gain ground as the commodity-linked Canadian Dollar (CAD) receives downward pressure from the lower Oil prices. West Texas Intermediate (WTI) Oil price trades around $58.70 at the time of writing. Crude Oil prices lose ground as the United States (US) pushes for a peace plan between Ukraine and Russia to end the three-year war. The American Petroleum Institute (API) weekly crude Oil stock report will be eyed later on Tuesday.

Statistics Canada reported Friday that Retail Sales fell 0.7% in September, in line with market expectations and reversing August’s 1% increase. Traders await Canadian Gross Domestic Product (GDP) growth figures due this week.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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