Canadian Dollar consolidates below mid-1.3800s as oil strength offsets USD Fed support

The Euro (EUR) continued to outperform the Canadian Dollar (CAD) for the second day in a row, as of Monday's European trading hours. This trend persisted as the Euro maintained its strength against the CAD following the Eurozone's positive Sentix Investor Confidence figures and Germany's weaker-than-expected Industrial Production data. Traders also kept a close eye on the upcoming Eurozone Gross Domestic Product data, scheduled for release later in the day.

Eurozone's Sentix Investor Confidence data showed a significant jump to 5.1 in September, up from 0.9 in August, marking a notable shift in sentiment. This positive trend emerged after a series of negative sentiments for the previous five months. Meanwhile, Germany's Industrial Production fell by 1.1% in July, falling short of market expectations of a 0.3% increase and declining further from June's 0% growth.

Even with this sluggish economic performance, the Euro secured support from anticipations of monetary tightening by the European Central Bank (ECB). The ECB is widely expected to increase its key interest rates by 25 basis points at its forthcoming policy meeting on Thursday.

Andrew Kenningham, Chief Europe Economist at Capital Economics, stated that the ECB Governing Council is likely to raise its deposit rate from 2.25% to 2.50%. However, further gains for the EUR/CAD cross might be limited as rising crude oil prices bolster the Canadian Dollar. Energy prices surged following a recent geopolitical incident involving Iran and the US, which led to heightened concerns over potential disruptions to Middle Eastern energy supplies.

Analysts at Deutsche Bank observed that risk markets waned over the past week due to increasing energy prices and apprehensions about persistent inflation. Brent crude oil prices rose 7.80% last week, reaching $96.28 per barrel, the highest level in six weeks, which further highlighted the impact of the oil rally on inflation concerns.