EUR/CAD fell for a second day and traded near 1.5960 in European hours on Tuesday, holding close to 1.5950. The Euro weakened as demand for safer assets rose and US–Iran talks remained stalled.
Markets expect the European Central Bank to keep its deposit rate at 2.0% at Thursday’s meeting, where it has been since June last year. Policymakers are expected to wait for more data amid uncertainty linked to the Middle East conflict.
The pair’s drop was limited as the Canadian Dollar also softened amid risk aversion. The CAD may find support from higher oil prices, as Canada is the largest crude exporter to the United States.
WTI rose more than 2% on Tuesday to about $96.90 a barrel. Prices increased as the Strait of Hormuz remained largely shut, reducing Middle East energy supply.
US President Donald Trump appeared unlikely to accept Iran’s offer to end the closure. US Secretary of State Marco Rubio also indicated any deal would need to include Iran’s nuclear programme.
The Bank of Canada is widely expected to hold its policy rate at 2.25% on Wednesday. Markets are split on whether it will point to a later rise or keep rates on hold for the rest of the year.
We are looking at a very different picture for EUR/CAD today compared to what was described back in late 2025. The pair is now trading near 1.4850, a significant drop from the 1.5950 levels seen when Middle East tensions were at their peak. This major shift has been driven by diverging central bank policies and a complete reversal in the energy market.
The policy paths for the European Central Bank and the Bank of Canada have moved in opposite directions since last year. While the ECB held its rate at 2.0% for a time, persistent inflation, which is currently running at an annualized 2.4% as of March 2026, forced them to hike further to the current 2.75%. The Bank of Canada, facing slowing growth and inflation that fell to 1.9%, has since cut its rate from 2.25% down to 1.75%.
The geopolitical risk premium that was supporting the Canadian Dollar has completely vanished. The crisis in the Strait of Hormuz was resolved in early 2026, and WTI crude oil prices have fallen from over $96 a barrel to a more stable range around $78. This has reduced a key source of strength for the commodity-linked Canadian currency.
For traders, this creates a clearer, fundamentally driven environment compared to the headline-driven volatility of 2025. Implied volatility on EUR/CAD options has fallen by over 30% from its peak during the crisis. This suggests that strategies involving selling options to collect premium, such as short strangles, could be favorable if this stable trend continues.
The key data points to watch in the coming weeks will be inflation and employment reports from both economies. If Eurozone inflation remains sticky above the ECB’s target, it will reinforce the view that its rates will stay higher for longer. Any weakness in Canadian economic data would increase the probability of another rate cut from the Bank of Canada, likely pushing EUR/CAD higher.
