Oil Surge and Rate Cut Speculation Boost Canadian Dollar as US Dollar Weakens

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3450-1.3550

Euro                 1.5050-1.5150

Sterling            1.7800-1.7900

WTI Oil (opening level) $76.50

The US Dollar index continues to decline as Fed Chair Powell removed any doubt as to a rate cut in September on Friday, Powell basically said that the fight on inflation is over and the Fed must now ensure a strong labour market to help the economy. The question now for the Dollar is will the first rate cut be a conservative quarter point reduction or will the Fed go for a more aggressive half point reduction, either way the Dollar should remain trading with a weak bias ahead of that September announcement.

Markets had a nervous weekend as the Middle East conflict saw an escalation with the large scale rocket attacks over the weekend but for now it does not look like it will head to a full scale war with Hezbollah and Iran, this of course can change very quickly and if the situation were to fully develop then stocks markets would fall back and the Dollar would get some strength.

The Canadian Dollar was able to pick up some further strength against the US Dollar on the back of the Powell speech, at one point overnight it dipped below the 1.3500 (0.7407) level but for the moment it is holding steady just above that level. The Loonie also saw a little benefit as the oil price jumped about $4 a barrel on the back of the Mideast crisis but it still was not able to make much strength against the other currencies so we may see it give back some strength when the Bank of Canada has its own rate cut in September.

Another busy week on the calendar, to close out the month as we get both GDP data out of the US and Canada later in the week. For today we get some secondary data out of Canada and the US, stocks remain supported and are poised for a positive a small gain on the opening and the currency markets should remain stable