EUR/CAD fell on Wednesday as the Canadian Dollar strengthened after the Bank of Canada decision, with higher Oil prices also supporting the currency. The pair traded near 1.5982, close to one-month lows and about 0.28% lower on the day.
The Bank of Canada kept the overnight rate at 2.25%, matching expectations, and took a wait-and-see approach. It said it is monitoring the conflict in the Middle East, and how the economy responds to US tariffs and trade policy uncertainty.
Bank Of Canada Signals Data Dependence
The Bank gave no firm guidance and said decisions will depend on data. Governor Tiff Macklem said a policy rate near current settings looks suitable, and the Bank could raise rates in consecutive steps if energy-led inflation spreads, or cut rates if the US adds major trade restrictions.
The Bank’s forecasts were largely unchanged, with GDP growth seen at 1.2% in 2026, 1.6% in 2027, and 1.7% in 2028. Inflation is forecast at 2.3% in 2026, then 2.1% in 2027 and 2.0% in 2028.
The outlook assumes US tariffs do not change and Oil prices ease towards $75 per barrel by mid-2027. Focus now shifts to the ECB on Thursday, with rates expected to stay at 2.0% for a seventh meeting.
Given the Bank of Canada’s hawkish tone, we see continued strength in the Canadian Dollar against the Euro. The BoC is clearly signaling a readiness to hike rates if inflation persists, creating a stark policy divergence with the European Central Bank. This suggests the recent move to one-month lows in EUR/CAD around 1.5982 may have further to run.
Eurozone Growth And Inflation Crosscurrents
The BoC’s concerns are well-founded, as the latest data from earlier this month showed Canadian CPI for March unexpectedly jumped to 2.9%, well above the Bank’s 2% target. With WTI crude oil prices closing yesterday above $95 per barrel for the first time since late 2025, the inflationary pressures are not subsiding. This environment strongly supports the Loonie and validates the central bank’s vigilant stance.
Conversely, the situation in the Eurozone appears more fragile, making an ECB rate hike unlikely tomorrow. Recent flash estimates showed April inflation remaining elevated at 2.8%, but first-quarter GDP growth was a mere 0.1%, highlighting significant stagflation risks. We saw how recession fears forced the ECB to pause its policy normalization back in 2025, and they face a similar dilemma now.
For derivative traders, this outlook makes buying EUR/CAD put options an attractive strategy. A put option with a strike price around 1.5900 would allow us to profit from further downside while limiting our risk. This is particularly prudent given Governor Macklem’s warning that significant US trade restrictions could force an unexpected rate cut, which would cause a sharp reversal.
The high level of uncertainty from both central banks is also inflating short-term implied volatility in the pair. This makes strategies like calendar spreads appealing, where we could sell a near-term, high-premium option to fund the purchase of a longer-dated one. This allows us to benefit from the current volatility while positioning for a longer-term trend.
