EUR/CAD holds above 1.6000 as rising energy prices reinforce odds of cautious ECB stance

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EUR/CAD may advance as higher energy prices reinforce expectations of a cautious ECB outlook.
The European Central Bank is expected to leave interest rates unchanged in April.
The commodity-linked CAD gains ground due to higher oil prices.

EUR/CAD moves little after two days of gains, trading around 1.6010 during the European hours on Monday. The currency cross may rise as the Euro (EUR) draws support from surging energy prices, which have strengthened expectations around the European Central Bank (ECB) cautious outlook. Focus will also shift to Germany’s GfK Consumer Confidence report for additional clues on the region’s economic outlook.

Investors are closely watching the upcoming April ECB policy meeting due on Thursday, where policymakers are widely expected to leave interest rates unchanged. The ECB is likely to adopt a wait-and-see approach as it assesses the impact of recent economic data and evolving geopolitical risks.

The upside of the Euro is offset by the strength of the commodity-linked Canadian Dollar (CAD), which could be attributed to higher oil prices, given Canada’s status as the largest crude exporter to the United States (US).

West Texas Intermediate (WTI) oil price gains ground, trading around $94.80 per barrel at the time of writing. Crude oil prices advance on rising supply concerns amid stalled US–Iran peace talks. US President Donald Trump called off that delegation to Pakistan to potentially discuss directly with Iran. Iranian President Masoud Pezeshkian stated that his nation won’t enter “imposed negotiations under threats or blockade.”

Crude oil prices receive support from heightening fears of prolonged disruptions as traffic through the strategic waterway remains largely restricted due to Iran’s controls and the US naval blockade.

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.