Euro advances against Canadian Dollar on strong German trade, weak oil

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EUR/CAD gains ground after two days of losses, trading around 1.6210 during the European hours on Thursday. The currency cross remains stronger following stronger-than-expected trade data from Germany.

Euro holds gains following stronger-than-expected trade data from Germany.
Germany's May trade surplus widened to €19.1 billion, as exports grew 0.9% while imports fell 2.5%.
The commodity-linked CAD weakens as falling oil prices drag the oil-sensitive currency down.

Germany's Trade Surplus widened to €19.1 billion in May, marking the largest surplus since February. This comfortably beat market forecasts of €14.8 billion and followed an upwardly revised €14.7 billion surplus in April. This expansion was driven by an unexpected 0.9% month-on-month surge in German exports, which hit a three-and-a-half-year high and defied expectations of a 0.3% decline. Conversely, imports dropped by 2.5% to a three-month low, missing the estimate for a 0.1% growth and reversing the previous month's 1.1% gain.

The EUR/CAD cross found support as the commodity-linked Canadian Dollar (CAD) weakened in tandem with falling oil prices. West Texas Intermediate (WTI) crude slips below $73.00 per barrel at the time of writing.

However, crude oil prices could quickly reverse course due to escalating Middle East tensions. For the second consecutive day, the United States (US) and Iran traded military strikes over control of the strategic Strait of Hormuz. The latest American attacks killed three people and left several others wounded in western Iran, according to the official state news agency, IRNA.

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.