The euro gained ground against the Canadian dollar yesterday following the Bank of Canada’s decision to slash the long-held benchmark interest rates by 25 bps. The French industrial production data also surpassed estimates. This enabled the EUR/CAD pair to surge from a low of 1.4840 to a high of 1.4881 in the past 24 hours.
According to the National Institute of Statistics and Economic Studies (INSEE), French industrial production inched up 0.50% m-o-m in April following a contraction of 0.20% in the previous month, surpassing forecasts of 0.30% growth.
The manufacturing sector rebounded with a growth of 0.40% m-o-m in April after a contraction of 0.40% in March. In particular, machinery and equipment goods recorded an increase of 2.70% m-o-m in April following a 1.30% decline in March. Mining and quarrying, energy, and water supply rose by 1.20% m-o-m in April, following an increase of 0.80% in the previous month.
On the contrary, output declined by 2.60% m-o-m in the manufacture of transport equipment in April after a 2.10% increase in March. Motor vehicles, trailers, and semi-trailers inched up 0.90%.
Food products and beverage manufacturing inched down 0.80% m-o-m in April, following a 0.50% decline in March.
Notably, the manufacturing industry’s output rose by 0.70% in the three months that ended in April 2024 compared with the previous three months. As a whole, French industrial production grew by 0.30% q-o-q in the March 2024 quarter.
Furthermore, output rose by 0.70% m-o-m in the manufacture of food products and beverages in April. Likewise, coke and refined petroleum products output surged by 16.80% m-o-m in April. On the other hand, the manufacture of transport equipment fell by 4.70% m-o-m in April. Mining and quarrying, energy, and water supply fell by 1.70% m-o-m in April. Similarly, machinery and equipment goods declined by 1.80% in the same period.
In the US session, the Bank of Canada, signaling a notable transition in its monetary policy, slashed the benchmark interest rates. Notably, this is the first rate cut since commencing its historic rate-hiking cycle in March 2022, aimed at curbing inflation. The central bank lowered its overnight interest rate to 4.75%, a 25-basis-point decrease from the previous 5% level, which had been maintained since interest rates hit a peak in July 2023.
The decision was in line with the market’s expectations. The BoC had left the interest rate unchanged in the previous six meetings before yesterday’s announcement. Inflation has significantly declined from a four-decade high of 6.80% recorded two years ago. In the central bank’s April rate decision, Governor Tiff Macklem expressed confidence that inflation would meet the Bank of Canada’s targeted level of 2% by 2025 but emphasized the need for sustained data showing an ongoing reduction in headline inflation before proceeding with a rate cut. April’s inflation figure of 2.70% reinforced this outlook.
A decelerating economy, with GDP growth of 1.7 percent in the March 2024 quarter—falling short of the Bank of Canada’s forecast of 2.80% and economists’ consensus of 2.20% – also indicated a favorable scenario for lowering long-term borrowing costs. Macklem has indicated that future rate reductions are not likely to mirror the rapid pace of previous increases, such as the 100-basis-point hike in July 2022 and the 75-basis-point rise in September 2022.
The rate cut is expected to keep the Canadian dollar slightly bearish in the near term.
The historical price chart indicates that the EUR/CAD pair is ascending after consolidating at 1.4800 levels. The currency pair is trading above its 50-day moving average, while the stochastic indicator is in the bullish zone. Therefore, we anticipate the EUR/CAD pair to remain in an uptrend for the next few trading sessions.
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