CAD_2_M

Macro/FX Watch: EURCAD in focus with gains in oil and ECB meeting on the radar

Forex 5 minutes to read
Charu Chanana 400x400
Charu Chanana

Chief Investment Strategist

Summary:  The upswing in oil prices made CAD the G10 outperformer in yesterday’s session. USDCAD has room on the downside after the recent run higher but EUR and JPY have more to lose with oil prices rising which brings EURCAD into focus. Also, bets for an ECB rate hike have picked up after a recent Reuters report suggesting inflation forecasts may be adjusted higher, but boost to EUR could remain limited with stagflation concerns rising.


13_FX_Daily

CAD: Crude oil prices bring upside in Canadian dollar

Crude oil prices extended its gains yesterday after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought. In its latest monthly outlook, the oil group said the market may experience a shortfall of 3.3mb/d in the fourth quarter of the year. This came in above expectations, and would make it one of the largest deficits in more than a decade. The oil market could get even tighter if the economic data starts to improve for China after a host of stimulus measures announced over the last several weeks. This has led to some analysts expecting $100 oil could be a possibility, despite scope for this artificially created tightness to soften from October when refinery demand for crude oil slows due to maintenance. Still, focus is likely to stay on crude oil for now as 10-month highs have been reached, and this is prompting a recovery in CAD.

USDCAD retreated from last week’s highs of 1.3695 to test the short-term support at 0.236 retracement of 1.3553. The price of oil directly influences CAD as oil is one of Canada's major exports. Meanwhile, despite the central bank leaving its interest rate on hold at 5% at the last meeting, a stronger-than-expected jobs report on Friday has boosted the odds of another rate hike later in the year. Headline job gains came in at +39.9k for August vs. expectations of +20k with wages also firmer than expected. While possibility of more rate hikes may be low given Q2 GDP growth was negative, the wage pressures may also prevent the BOC from turning outright dovish anytime soon.

This could open up the room for a recovery in CAD after the recent weakness, both from aa run higher in oil prices. Canadian economy also could benefit due to the resilience of the US economy. Meanwhile, USDCAD has rallied from lows of 1.3093 in mid-July to 1.3695 last week so correction may be due. However, worth noting that higher oil prices could also bump up the US inflation outlook once again while strengthening the economic outlook as US is also a net energy exporter. This could mean that King Dollar could continue to reign, and that could restrain oil for now. EUR and JPY could come under pressure with the increase in oil prices for being primarily energy importers.

Market Takeaway: USDCAD has room to retrace recent gains if oil prices continue to surge, but US CPI today could be key. EURCAD may be a more direct oil play as Canada benefits with higher oil prices while Europe stands to lose.

13_FX_CAD
Source: Bloomberg

EUR: ECB leak points to a potential rate hike?

Reuters reported, according to an unnamed source, that ECB’s new 2024 inflation projection could be above 3% vs. 3% in June. This has firmed up the case for another interest rate hike this week, with market now pricing in a more than even chance of a rate hike. We noted earlier that markets may be under-pricing the risk of an ECB rate hike in last week’s Macro/FX Watch, and the scenario still holds. Stagflation concerns are picking up in the Eurozone, which keeps rate hike bets measured. But worth considering that if some of the ECB members think that inflation is entrenched beyond the near-term disinflation, then the window to hike rates is extremely small until the Fed pause turns out to be the end of the tightening cycle. Next ECB meeting will be October 26, by when we may have started to see a more clear weakness in US spending data.

However, even if the ECB decided to hike rates this week, sending out hawkish vibes may remain tough, which suggests that the upside for EUR may be limited and short-lived. EURUSD rallied to 1.0765 before reversing and the message will have to be extremely hawkish along with a 25bps rate hike for EURUSD to challenge the 200DMA at 1.0828.

Market Takeaway: EURUSD could remain supported into the September 14 ECB meeting but upside could evade even if the ECB hikes rates. More upside likely in EURGBP which is seen challenging 100DMA at 0.8614.

Quarterly Outlook

01 /

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.