EUR/CAD Rallies on CAD Weakness, ECB Tightening Expectations
The EUR/CAD exchange rate continued its upward trend for the second consecutive day, reaching around 1.6090 during European hours on Wednesday. This move can be attributed in part to the weakness of the commodity-linked Canadian Dollar (CAD), which has struggled to maintain recent gains as support from rising oil prices has faded.
The CAD has been under pressure due to the unexpected increase of 7.14 million barrels in U.S. crude inventories for the week ending September 11, reversing a prior draw of 300,000 barrels logged the previous week. This abrupt shift in inventory dynamics has interrupted the earlier rally in crude, limiting support for the CAD and contributing to the upside in EUR/CAD.
The European Central Bank's (ECB) policy path beyond a single rate hike is also being closely watched by markets. Analysts at Rabobank report that investors are increasingly convinced that the ECB will deliver a broader tightening cycle rather than a one-and-done hike, with markets expecting more than four additional rate hikes on top of the two already delivered.
Despite the latest inventory-driven setback, crude prices may soon find support as supply risks in the Middle East intensify. Energy markets are confronting renewed concerns about tightness following reports that Saudi Arabia has canceled multiple September crude shipments to European buyers.