Euro remains stronger against Canadian Dollar following Eurozone Investor Confidence

EUR/CAD remains stronger for the second consecutive day, trading around 1.6080 during European hours on Monday. The currency cross remained stronger as the Euro (EUR) held its ground against the Canadian Dollar following the release of Eurozone Sentix Investor Confidence and Germany's weaker-than-expected Industrial Production data. Furthermore, traders remain focused on seasonally adjusted Eurozone Gross Domestic Product figures due later in the day.

Eurozone’s Sentix Investor Confidence data came in significantly higher at 5.1 in September from 0.9 in August. The sentiment data turned positive in August after remaining negative in the previous five months. Germany’s Industrial Production fell 1.1% month-over-month in July, missing market expectations of a 0.3% gain and slowing from 0% in June. On an annual basis, industrial activity dropped 1.6% in July following a 0.5% decline in the prior month.

Despite the sluggish economic output in Germany, the Euro found underlying support from expectations of monetary tightening. The European Central Bank (ECB) is widely anticipated to raise its key interest rates by 25 basis points at its upcoming policy meeting on Thursday. Andrew Kenningham, chief Europe economist at Capital Economics, noted that the ECB Governing Council looks certain to lift its deposit rate from 2.25% to 2.50%.

However, further gains for the EUR/CAD cross could be constrained as higher crude oil prices lend support to the Canadian Dollar. Energy prices surged following a geopolitical escalation over the weekend, when the US targeted three Iranian oil tankers in response to missile attacks against US Navy warships. Tehran subsequently established a new restricted zone beyond the Strait of Hormuz across part of the Persian Gulf, raising widespread concerns over prolonged disruptions to Middle Eastern energy supplies.

Energy spike keeps pressure on risk assets

Analysts at Deutsche Bank note that risk markets lost momentum over the past week as investors contended with another leg higher in energy prices. They highlight that “risk assets struggled to gain much traction, as a fresh rise in energy prices raised fears about more persistent inflation,” particularly against the backdrop of “no signs of progress on reopening the Strait of Hormuz.” In that context, Deutsche Bank points out that “Brent crude oil [was] up +7.80% last week (+0.80% Friday) to $96.28/bbl, their highest in six weeks,” underscoring how the latest oil rally is reinforcing concerns about the durability of inflation pressures.