US Dollar Weakens on Economic Data, Rate Cuts Loom; Loonie Stable Amid BoC Move

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

US Dollar        1.3500-1.3600

Euro                 1.4950-1.5050

Sterling            1.7750-1.7850

WTI Oil (opening level) $69.02

The US Dollar index is marginally weaker this morning as slightly worse than expected US secondary economic data yesterday is pointing to a hard landing for the economy and raised the possibility of a bigger than expected interest rate cut by the Federal Reserve later this month. It is pretty much expected that the Fed will cut interest rates by 0.25% but a hard landing for the US economy is creating the chance of a 0.50% cut to start the ball rolling and such a move would put increased pressure on the Greenback.

As expected the Bank of Canada cut interest rates by 0.25% to the new level of 4.25% which is the third straight 0.25% rate cut this year. The Loonie initially strengthened by about 50 points with USD.CAD falling to trade at 1.3500 (0.7407) but as the Governor Macklin stated the the Bank stands ready to increase the pace of rate cuts if economic growth requires it the Loonie gave back some of those gains, it opens the day near the 1.3520 (0.7396) level. The Loonie should remain stable ahead of tomorrow's US and Canadian Employment reports.

Stocks were basically flat yesterday but like the currency market they will get ready for tomorrow's July Employment report. All signs are pointing to slowing jobs growth in the US and a poor number could point to a huge drop in the stock market and again push the Fed to a 0.50% interest rate cut. Markets should remain steady ahead of the announcement tomorrow and then volatility will increase dramatically.