Why is the Euro struggling against the Canadian Dollar despite lower oil prices?

• The Euro weakens amid expectations that the ECB will keep interest rates unchanged on Thursday, with any potential increase deferred until December.
• Downside risks to the Euro have been contained in part by Moody’s retention of France's Aa3 credit rating.
• EUR/CAD continues to find some support as diplomatic discussions in the Middle East push crude oil prices lower.

Selling pressure persists in EUR/CAD, which is hovering near 1.5650 in Tuesday's European session as its decline stretches into a sixth consecutive day. Weighing on the cross is weakness in the Euro (EUR) ahead of this week's European Central Bank (ECB) policy announcement.

With economic momentum fading, the ECB is expected to retain its key interest rate at Thursday's meeting. A Reuters poll of economists points instead to a 25 basis point increase in December. For indications of the central bank's future policy direction, traders will scrutinise forthcoming remarks from ECB President Christine Lagarde.

Support for sentiment towards the single currency came from Moody’s Ratings last week, when it reaffirmed France’s Aa3 credit rating. The rating was retained despite steadily mounting national debt and a fragmented political landscape that has made it harder to curb borrowing. By alleviating concerns that France's fiscal difficulties might prompt a wider repricing of Eurozone assets, the decision helped restrain pressure on the Euro.

Do softer Euro area PMIs still point to solid Q4 growth?

Survey readings continue to indicate a reasonably resilient activity backdrop despite some cooling, according to analysts at Danske Bank. On the Euro area, they observe that “the flash PMIs fell slightly more than expected in October but continue to point to decent growth at the start of Q4 despite somewhat softer momentum,”

Lower crude oil prices could also put a floor under EUR/CAD by weighing on the commodity-linked Canadian Dollar. Renewed Middle East diplomacy fuelled hopes that a broader escalation of the US-Iran conflict could be avoided, sending oil prices down. After high-level discussions in Tehran, officials from Iran, Saudi Arabia, Pakistan, and Turkey agreed on Monday to strengthen regional cooperation and continue security talks aimed at safeguarding peace and stability in the region.