Euro maintains gains against Canadian Dollar as BoC rate decision nears

• A 25 bps BoC rate rise on Wednesday is priced into markets, lending support to the Canadian Dollar.
• The commodity-linked CAD receives a further lift from stronger crude prices and uncertainty over Israel’s election.
• Fiscal worries, volatile bond markets and expectations of ECB rate pauses weigh on the Euro.

A 25-basis-point interest rate rise is largely priced into financial markets ahead of the Bank of Canada’s (BoC) policy announcement later on Wednesday. With the decision approaching, EUR/CAD shows little movement, edging up to around 1.5640 in European trading after six consecutive days of declines.

Rising crude oil prices are nevertheless lending support to the commodity-linked Canadian Dollar (CAD), potentially weighing on EUR/CAD. Oil advanced as global markets focused on Israel’s election results and their potential to change the course of the ongoing Middle East conflict. With neither bloc shown to have secured an immediate majority, exit polls suggested a close contest between Prime Minister Benjamin Netanyahu and opposition leader Gadi Eisenkot. Although the outcome remains deadlocked, it signals diminishing support for Netanyahu after he has led the country through nearly three years of uninterrupted conflict.

Thursday’s European Central Bank (ECB) policy meeting will be the next focus for markets. Following a 25-basis-point increase in September, the central bank is expected to leave its key interest rates on hold. With the Euro heading for the weakest monthly performance among developed-market currencies, EUR/CAD could fall further. In the near term, expensive energy, continued volatility in French government bonds and lingering worries about France’s fiscal position are expected to maintain selling pressure on the single currency.

At -30.8 heading into November, Germany’s GfK Consumer Climate Indicator slipped from October’s -30.6. The figure was slightly stronger than the market forecast of -31.0, but still represented the weakest consumer sentiment since May and was well below the -24.1 registered a year earlier. Even with modest gains in broader economic sentiment, the overall recovery remains constrained as sustained concerns about household finances and high inflation curb consumers’ willingness to spend.