Why Germany's Record Trade Surplus Is Lifting the Euro and Stalling the Loonie

Impact on EUR/CAD Near 1.6210

The strong German data provided a direct tailwind for the euro. ECB reference rates show EUR/CAD had been trading in the 1.59–1.60 range through early May, then climbed steadily to the 1.606–1.609 zone by mid-May . By late May, the pair was pressing above 1.62, and the XE mid-market rate on July 9 stood at €1 = 1.61975 CAD — very close to the 1.6210 level cited . The widening German surplus reinforced euro demand on the view that Europe's largest economy was outperforming expectations, which added upward pressure on the EUR side of the pair.

Opposing Forces on the Canadian Dollar

The loonie faced a tug-of-war:

• Oil's earlier surge on U.S.-Iran tensions — In early May, oil prices jumped sharply after President Trump declared Iran's reply to a US peace proposal unacceptable, with the Strait of Hormuz largely closed. Brent surged past $107 and WTI broke above $100 . This normally supports the loonie, as Canada is a major oil exporter.

• Crude's pullback from $75 and the 5% jump — By late June/early July, oil had pulled back sharply from war-driven peaks, with Brent settling below $70 at one point as ceasefire talks progressed . But on July 7–8, oil surged again: Brent jumped nearly 5.5% to above $75/barrel after the US revoked Iran's oil sanctions waiver and struck three commercial vessels near the Strait of Hormuz . Trading Economics reported crude spiking as much as on renewed Middle East escalation fears .

The net effect on the loonie was mixed: the pullback in oil from war highs weakened CAD in late May/June, but the fresh geopolitical spike in early July gave CAD a brief reprieve. Overall, EUR/CAD stayed elevated near 1.62 — suggesting the euro's fundamental support from German trade data outweighed the CAD-supportive but short-lived oil spikes.

BoC Rate Outlook and Loonie Forecasts for 2026

• BoC policy: The Bank of Canada has held its overnight rate at 2.25% since early 2026, maintaining a steady pause through consecutive meetings. No further rate cuts are expected . Scotiabank Economics forecasts the BoC will stay on hold through H1 2026, then potentially deliver 50 bps of tightening in H2 2026 — the next move being a hike .

• GDP and inflation: The BoC's January 2026 Monetary Policy Report projects modest GDP growth of 1.1% in 2026, with inflation near 2.5% early in the year before easing back toward target .

• Key risk: Trade policy with the US is seen as the main downside risk. The BoC's April outlook assumes tariffs remain in place and oil declines to $75/barrel by mid-2027 .

• Loonie forecasts: BDC expects the Canadian dollar to trade between US$0.70–0.72 (i.e., roughly CAD 1.39–1.43 per USD) through early 2026 . TD Economics projects the USDCAD rate around 1.40–1.42 through Q4 2026, with the Canada-US rate differential narrowing modestly in CAD's favor . Against the euro, the current EUR/CAD level near 1.62 implies CAD remains on the weaker side of its recent range, reflecting both the euro's trade-driven strength and lingering CAD headwinds from oil volatility and trade uncertainty.