The possibility of inflation rate increase pushes the USD index higher

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

US Dollar         1.2700-1.2800

Euro                 1.5500-1.5600

Sterling            1.7200-1.7300

The US Dollar Index is stronger this morning as markets react to rising bond yields in the US overnight. Investors are starting to look at the long-term effects of the massive stimulus program that the Democrats will put in place and it is starting to drive bond yields higher which will push the stock market lower. The expectation is that any massive stimulus program will push the inflation rate up and higher interest rates will be needed to control inflation. I am not convinced that this is nothing more than a quick reactionary move to a small increase in bond yields but stocks are pointing lower this morning so it may be something to watch to see if it turns into a trend.

The Canadian Dollar as lost some significant ground to the stronger US Dollar with USD.CAD opening the day much higher at the 1.2770 (0.7831) level and looks to be in for a tough day. This weakness started with the poor jobs report from Friday and has now continued overnight to start the Loonie off the trading week with a weak bias. The only positive news for our Dollar is that it did not weaken as much as the Euro and Pound so it actually picked up a little strength to start the week against those currencies.

Nothing on the calendar for today, the highlight of the week will be the US Inflation report for December due out on Wednesday, ahead of that markets will keep an eye on interest rates and if Bond yields continue to rise then the stock market will remain weak and the US Dollar will jump.