Can Euro sustain gains against Canadian Dollar ahead of BoC rate decision?

• The Canadian Dollar draws support as markets factor in a 25 bps BoC rate increase on Wednesday.
• The commodity-linked CAD receives a further lift from firmer crude prices and uncertainty surrounding the Israeli election.
• Fiscal worries and bond market volatility weigh on the Euro, alongside expectations that the ECB will pause rate increases.

A modest recovery in EUR/CAD interrupts six consecutive days of declines, with the cross hovering near 1.5640 in Wednesday’s European session. Trading remained subdued before the Bank of Canada’s (BoC) policy announcement later in the day. Financial markets have largely factored in a 25-basis-point increase in interest rates.

Strength in the commodity-linked Canadian Dollar (CAD), supported by firmer crude oil prices, could nevertheless weigh on EUR/CAD. Oil advanced as global markets focused on Israel’s election outcome and its potential to change the course of the ongoing Middle East conflict. Neither bloc appeared set to win an outright majority immediately, with exit polls pointing to a closely fought contest between Prime Minister Benjamin Netanyahu and opposition leader Gadi Eisenkot. While the outcome remained deadlocked, it suggested that support was weakening for Netanyahu, who 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. After raising rates by 25 basis points in September, the central bank is expected to leave its key interest rates unchanged. With the Euro heading for the weakest monthly performance among developed-market currencies, EUR/CAD could face further losses. In the near term, selling pressure on the common currency is expected to persist amid elevated energy costs, continued swings in French government bonds and lingering worries about France’s fiscal position.

Consumer sentiment in Germany weakened marginally ahead of November, as the GfK Consumer Climate Indicator slipped to -30.8 from October’s -30.6. The result was slightly stronger than the market forecast of -31.0, but still represented the weakest reading since May and was well below the -24.1 registered a year earlier. Despite a modest improvement in broader economic sentiment, the overall recovery remains constrained. Continuing worries about household finances and high inflation are keeping consumers’ spending intentions subdued.