Euro holds gains against Canadian Dollar despite ECB rate hike doubts, rising oil prices

EUR/CAD inches higher after two days of losses, trading around 1.5810 during European hours on Thursday. However, the currency cross may face further challenges as the Euro (EUR) remains under pressure.

Market experts doubt that the European Central Bank's (ECB) monetary tightening cycle can be sustained in the long run. Although the ECB has raised interest rates twice this year and is projected to deliver one final hike at its December meeting, growing economic uncertainty is expected to halt further tightening afterward.

Strategists at Rabobank caution that, while another rate increase in December remains likely, “the ECB, however, could prove to be reluctant to hike rates beyond December.” They note that “the last ECB press conference suggested that the GC were becoming increasingly concerned about the growth outlook,” reinforcing the view that mounting downside risks to Eurozone activity may temper the central bank’s appetite for further tightening once this year’s move is delivered.

Additionally, the EUR/CAD cross is depreciating as the commodity-linked Canadian Dollar (CAD) gains support from rising oil prices. Crude oil prices have recovered their daily losses because persistent geopolitical tensions in the Middle East are offsetting the downward pressure caused by increasing regional crude output.

According to Reuters, Ole Hansen, head of commodity strategy at Saxo Bank, noted that the market is currently in a "no war, no peace" situation. This dynamic is allowing Middle East oil production to recover from recent disruptions despite the deadlock in US–Iran negotiations. While the returning supply is pressuring crude prices, Hansen stated that lingering geopolitical risks will likely limit any further downside.

Meanwhile, Iranian security chief Mohsen Rezaei declared in televised remarks that Iran will not allow even a single particle of enriched nuclear material to leave the country, warning of consequences if the US launches new strikes. For its part, Washington has insisted that nuclear issues must be included in any initial negotiations aimed at ending the eight-month-old war, though US officials have downplayed the need for further military action.