Euro gains against Canadian Dollar as oil prices retreat on rising US crude inventories

EUR/CAD extends its gains for the second consecutive day, trading around 1.6090 during European hours on Wednesday. Traders are closely watching the European economic calendar, as the seasonally adjusted Eurozone Industrial Production figures for July are scheduled for release later in the day.

Markets push ECB path beyond a one-and-done hike

Rabobank’s strategists observe that investors are firmly pricing a sustained tightening cycle rather than a single move, noting that “markets expect much more than a one-and-done hike.” They add that this is consistent with “expectations embedded in curves where central banks have shown a more proactive response.” In particular, Rabobank highlights that as of yesterday, “EUR money markets priced more than four additional rate hikes on top of the two the ECB has already delivered,” underscoring how far market expectations have moved ahead of the current policy stance.

The EUR/CAD cross appreciated as the commodity-linked Canadian Dollar (CAD) struggled to maintain momentum following a pause in the recent rally of crude oil prices. Crude prices pulled back from multi-month highs after US inventory data revealed an unexpected build of 7.14 million barrels for the week ending September 11, reversing a 300,000-barrel draw recorded in the previous week.

Despite the recent inventory-driven pullbacks, crude oil prices could quickly find a floor and rebound due to expanding supply disruptions in the Middle East. Energy markets face renewed supply tightness after Saudi Arabia reportedly canceled several September crude deliveries to European buyers. The cancellations follow recent drone strikes that forced the emergency shutdown of Saudi Arabia's critical East-West pipeline.

Adding to the supply concerns, renewed attacks by Iran-backed Houthi militants in the region have left the operational status of the East-West pipeline uncertain. With no clear timeline for its reopening, markets remain vulnerable to further geopolitical friction, as the pipeline serves as a vital alternative shipping route to bypass the vulnerable Strait of Hormuz.

Canada inflation holds steady as RBC sees policy on hold

Economists at Royal Bank of Canada highlight that "Canadian inflation held at 3% year-over-year in August, unchanged from July," noting that the latest print underscores a still-elevated but stable price environment. Against this backdrop, they point out that headline pressures remain contained even as food and energy costs stay relatively high, reinforcing the view that underlying inflation dynamics are broadly consistent with the BoC’s 2% target over the medium term.