• EUR/CAD weakens as the Canadian Dollar gains after the Bank of Canada holds interest rates steady.
• BoC highlights two-sided risks, signaling possible rate hikes or cuts depending on inflation and growth.
• Traders look ahead to the European Central Bank interest rate decision due on Thursday.

EUR/CAD trades on the back foot on Wednesday as the Canadian Dollar (CAD) strengthens broadly following the Bank of Canada monetary policy announcement, while rising Oil prices add further support to the commodity-linked Loonie. At the time of writing, the pair is trading around 1.5982, hovering near one-month lows and down about 0.28% on the day.

The BoC kept its overnight rate unchanged at 2.25%, in line with expectations, adopting a cautious wait-and-see approach as it assesses evolving global risks. In its statement, the Governing Council said it is “closely monitoring the impact of the conflict in the Middle East and how the economy is responding to US tariffs and trade policy uncertainty.” Policymakers added they are “looking through the war’s immediate impact on inflation” but will not let higher energy prices become “persistent inflation.”

The central bank avoided providing clear forward guidance, reinforcing a data-dependent stance. Governor Tiff Macklem said there is “no risk-free path” for monetary policy, adding that “a policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target.” He also warned that if higher energy prices begin to feed into broader inflation, the Bank “may need consecutive increases in the policy rate.” At the same time, Macklem noted that if the United States imposes significant new trade restrictions, policymakers “may need to cut the policy rate further.”

The growth outlook remains broadly unchanged from the January Monetary Policy Report, with the Bank of Canada projecting GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028. Inflation is expected to average 2.3% in 2026, above the previous 2.0% projection, before easing to 2.1% in 2027 and 2.0% in 2028.

However, the Monetary Policy Report noted that this outlook hinges on US tariffs staying unchanged and Oil prices gradually easing toward $75 per barrel by mid-2027.

Attention now turns to the European Central Bank interest rate decision on Thursday. Markets widely expect rates to be held at 2.0% for a seventh straight meeting. Given the Eurozone’s heavy reliance on energy imports, the recent surge in Oil prices remains a key concern. Traders will focus on how policymakers assess the balance between inflation risks and slowing growth, as they look for clues on whether the ECB could raise rates in the coming months.