EUR/CAD falls toward 1.5900 ahead of Eurozone HICP inflation data

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EUR/CAD extends its losing streak for the fourth successive session, trading around 1.5910 during the European hours on Tuesday. Traders await the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data for February, which is scheduled to be published later in the day.

EUR/CAD depreciates ahead of the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data release.
The commodity-linked Canadian Dollar gains support from higher Oil prices.
US officials say they destroyed IRGC command posts, air defenses, and missile launch sites.

The EUR/CAD cross depreciates as the commodity-linked Canadian Dollar (CAD) received support from higher Oil prices. Canada’s status as a major crude exporter makes its currency particularly sensitive to movements in Oil prices.

West Texas Intermediate (WTI) Oil price rises toward $75.00 at the time of writing. Crude Oil prices remain stronger on supply concerns due to the Middle East war. US military officials said on Tuesday that they have destroyed command posts of Iran’s Revolutionary Guards as well as Iranian air defense and missile launch sites since the start of the joint Israeli-US offensive on Saturday.

Ebrahim Jabari, senior adviser to the commander-in-chief of the Islamic Revolutionary Guard Corps (IRGC), said: “The Strait of Hormuz is closed. If anyone tries to pass, the heroes of the Revolutionary Guards and the regular navy will set those ships ablaze,” reported by Reuters.

Additionally, the CAD draws support as higher Oil prices reignite concerns about a fresh inflation wave in Canada, as investors fear rising energy costs could force central banks to keep interest rates higher for longer.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.