EUR/CAD appreciates to near 1.6200 despite risk-off mood

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EUR/CAD extends its gains for the third successive day, trading around 1.6200 during the European hours on Tuesday. The currency cross advances as the Euro (EUR) strengthens against its peers despite heightened risk aversion, largely driven by a weaker US Dollar (USD) amid the US–Greenland issue.

EUR/CAD advances as the Euro strengthens on a weaker USD amid the US–Greenland issue.
The Euro may weaken as easing Eurozone HICP reinforces expectations of prolonged ECB rate stability.
The commodity-linked Canadian Dollar may struggle amid lower oil prices.

However, the upside of the Euro could be restrained as easing Eurozone Harmonized Index of Consumer Prices (HICP) strengthens expectations that European Central Bank’s (ECB) interest rates will stay on hold for a prolonged period. The ECB has signaled a steady policy path, with no near-term discussion on further rate changes if current economic projections remain intact.

Eurozone HICP inflation slowed to 1.9% YoY in December 2025 from 2.1% in November, slightly below the preliminary 2.0% estimate, marking the first sub-2% reading since May. Meanwhile, core inflation, which excludes energy, food, alcohol, and tobacco, eased to 2.3%, the lowest in four months.

The EUR/CAD cross may further rise as the commodity-linked Canadian Dollar (CAD) may face challenges amid lower Oil prices, reflecting Canada’s position as the largest crude exporter to the United States (US). West Texas Intermediate (WTI) crude edges lower after two sessions of gains, trading near $58.80 per barrel at the time of writing. Oil prices remain under pressure as escalating US–EU frictions cloud the outlook for global demand.

The headline inflation rate in Canada rose to 2.4% in December of 2025 from 2.2% in the previous month, the highest in three months, and firmly above market expectations that the rate would remain unchanged. The result contrasted slightly with the Bank of Canada's (BoC) expectations that CPI inflation would remain around the 2% threshold in the near-term, which left the policy outlook mixed.

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Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

What is the difference between taxes and tariffs?

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

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There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

What is US President Donald Trump’s tariff plan?

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

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