Photo by Michelle Spollen on Unsplash
 

The EUR/CAD cross extends the rally to around 1.6370 during the early European trading hours on Friday. The fall in crude oil prices undermines the commodity-linked Canadian Dollar (CAD) against the Euro (EUR). The European Central Bank (ECB) President Christine Lagarde is scheduled to speak later on Friday. 

Oil prices, one of Canada's major exports, fall to near the lowest in four months amid concerns about oversupply in the market ahead of a meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+) over the weekend. "It's no surprise the Canadian dollar has broken down on the same day as oil," said Adam Button, chief currency analyst at investingLive. "The market is clearly scared of what's happening with OPEC,” added Button.

The downbeat Canadian economic data contributes to the CAD’s downside as it adds to some expectations of another rate cut by the Bank of Canada (BoC). Canada’s S&P Global Manufacturing Purchasing Managers’ Index (PMI) declined to 47.7 in September from 48.3 in August. This report signalled a continued contraction in factory activity and marked the eighth straight month of decline in the manufacturing sector. 

On the Euro front, ECB President Christine Lagarde stated there are no serious threats to the outlook for euro-area inflation but that officials must remain vigilant. Meanwhile, ECB Governing Council member Martins Kazaks noted on Thursday that the central bank can keep interest rates where they are unless the economy suffers another shock. 

The cautious remarks from ECB policymakers support the shared currency against the CAD in the near term. Financial investors are so comfortable with this outlook that they price just a 10% odds of another rate reduction later this year and see only a 30% chance of an easing by the middle of 2026. However, any surprise dovish comments from ECB officials later on Friday might cap the upside for the cross. 

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