EUR/CAD treads water above 1.6200 ahead of ECB’s Lagarde speech

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EUR/CAD remains flat after registering little losses in the previous day, trading around 1.6220 during the European hours on Tuesday.

EUR/CAD holds steady as hawkish ECB-driven Euro gains offset Canadian Dollar strength supported by improved market sentiment.
Traders await ECB Lagarde’s speech at the International Monetary Fund meeting later on Tuesday.
The commodity-linked CAD faces headwinds from lower oil prices amid easing supply concerns.

EUR/CAD remains flat after registering little losses in the previous day, trading around 1.6220 during the European hours on Tuesday. The currency cross remains steady, as the Euro’s (EUR) gains, driven by hawkish sentiment surrounding the European Central Bank policy outlook, offset the Canadian Dollar’s (CAD) strength, supported by improved market sentiment, which is linked to the possibility of further United States (US)-Iran ceasefire talks.

German and Spanish inflation data highlighted the positive effects stemming from the Iran war, ahead of ECB President Christine Lagarde’s appearance at the International Monetary Fund (IMF) meeting later on Tuesday. ING’s Francesco Pesole noted that Lagarde and other Governing Council members are likely to maintain a broadly hawkish tone amid Gulf volatility. Markets are currently pricing modest ECB tightening at the April 30 meeting, along with two additional rate hikes this year.

The EUR/CAD pair may gain further traction as the commodity-linked Canadian Dollar (CAD) could face headwinds from lower oil prices, given Canada’s status as the largest crude exporter to the United States (US). Crude oil prices are declining as supply concerns ease following reports that the US and Iran may engage in further negotiations to secure a longer-term ceasefire before the current two-week truce expires.

US President Donald Trump said Iran had initiated contact and is now seeking to resume negotiations. Vice President JD Vance also pointed to ongoing diplomatic efforts and a potential path toward US-Iran de-escalation. He added that recent weekend discussions were constructive, offering US officials deeper insight into Iran’s negotiating stance.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.