Middle East conflict might push US Dollar index significantly higher

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

US Dollar         1.2100-1.2200

Euro                 1.4650-1.4750

Sterling            1.7000-1.7100

The US Dollar Index is marginally weaker this morning as the Greenback takes a breather from its strong week, pushed higher by Wednesday's inflation data. Stocks are also calming down as Asian stocks are higher overnight, North American stocks are pointing higher this morning but this was after markets had a tough week as investors will leave the markets for safe haven investments when inflation runs hot. It is also interesting to see that a lot of commodity prices have fallen quite a bit overnight, they had also jumped much higher on inflationary fears and the expectation of high demand as the world's largest economies start to emerge from the pandemic. Commodities like iron ore, copper and aluminum were also significantly lower overnight which helped to drag currencies like the Canadian Dollar down from their best levels of the day.

It also looks like the conflict in the Middle East is expanding with missiles now being fired from Lebanon at Israel. If this conflict escalates in the coming days and countries like Iran get involved then that will have a big impact on the currency markets and the US Dollar could significantly jump on the safe haven effect.

The Canadian Dollar had a volatile 24 hours as late yesterday USD.CAD reached a high of 1.2200 (0.8197) which is the currency pairs highest level in a few days. That being said the Loonie was able to recover some of those losses overnight and the currency pair opens the day at the 1.2120 (0.8251) so the Loonie still has some clout left in it despite the worrying inflation data. If commodity good prices continue to fall then it will be a tough road to hoe for the Loonie going forward.

All market eyes will be on the US Retail Sales report for where the market is expecting a small growth in US Retail Sales. We will also get some Canadian Manufacturing data today from March but that should not have much impact on the Loonie. I would expect USD.CAD to hang in around the 1.2150 level for most of the day.