Euro advances against Canadian Dollar amid lower oil prices, ECB rate hike bets

EUR/CAD gains ground for the second successive day, trading around 1.6120 during the European hours on Wednesday. The currency cross gains ground as the commodity-linked Canadian Dollar (CAD) faces pressure from declining oil prices.

However, West Texas Intermediate crude could see a potential rebound following fresh United States (US) military strikes against Iranian targets near the Strait of Hormuz. President Donald Trump stated these attacks were in direct retaliation for Tehran’s attempts to place sea mines in the vital waterway and for a previous attack on an American military base.

Adding to the EUR/CAD pair's upward momentum, the Euro (EUR) received a boost from hot Eurozone inflation data for August, which heightened expectations of an interest rate hike by the European Central Bank this month.

Commerzbank argued that the renewed surge in the inflation rate above 3% will likely force the ECB to raise rates in September, though the bank acknowledged that underlying data points to a broader moderation in economic and labor market growth.

Eurozone tightening bets rise as energy costs climb

Analysts at ING observe that the recent surge in energy prices is feeding directly into policy expectations, noting that "higher energy prices continue to drag ECB tightening expectations higher, with currently another 80bp of tightening priced by next summer." They highlight that this repricing reflects markets building in a more extended tightening cycle for the ECB as energy-related cost pressures persist.