EUR/CAD declines as Canadian Dollar rallies on robust inflation, Oil rebound

• CAD strengthens as September inflation beats expectations, reducing bets on another Bank of Canada rate cut.
• WTI US Oil prices rebound, offering additional support to the Canadian currency.
• The Euro's upside remains limited despite temporary political stability in France and weak German industrial data.

EUR/CAD drops by 0.40% on Tuesday at the time of writing, trading around 1.6270, as the Canadian Dollar (CAD) appreciates following stronger-than-expected inflation data. According to Statistics Canada, the Consumer Price Index (CPI) rose by 0.1% MoM in September, compared with a 0.1% decline expected, while the annual rate accelerated to 2.4% after 1.9% in August. The Core Consumer Price Index increased to 2.8% YoY, moving further away from the Bank of Canada's (BoC) 2% inflation target.

These firmer figures reduce expectations for further BoC interest rate cuts at the October meeting. According to Reuters, markets were pricing in nearly a 77% probability of a 25-basis-point cut last week, but they are now adjusting their forecasts. The prospect of a delay in further monetary easing supports the Loonie, also helped by West Texas Intermediate (WTI) US Oil prices rebounding more than 1% for the day.

On the macroeconomic front, the Bank of Canada's latest Business Outlook Survey released on Monday already indicated a slight improvement in business sentiment but also lingering caution regarding US tariffs and weak demand. This backdrop, combined with resilient inflation, could prompt the BoC to pause before implementing any further policy adjustments.

In Europe, the Euro (EUR) weakens despite French Prime Minister Sébastien Lecornu surviving last week's no-confidence votes, which helped avert an immediate political crisis. However, investors remain cautious about the government's fragility and the challenges of pushing a tightening budget through a deeply divided parliament.

In Germany, data published by Destatis showed that the Producer Price Index (PPI) fell by 0.1% in September, contrary to expectations of a 0.1% rise. The persistent weakness in producer prices highlights ongoing disinflationary pressures in the Eurozone's largest economy.