USD index continues to climb higher ahead of the expected rate hikes

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

US Dollar             1.3050-1.3150

Euro                     1.3050-1.3150

Sterling                1.5200-1.5300

WTI Oil (opening level) $88.90

The US Dollar index is again stronger this morning as stocks were some 300 points lower yesterday, stock markets continue to react to the expectation that US interest rates are going to continue to rise at a fast pace to help combat inflation. The Dollar actually reached a 20-year high yesterday before it pulled back a little this morning.

The Euro staged a bit of a rebound this morning as EU inflation hit another record at 9.1% for August, a number which will surely lead the ECB to follow suit with the US Federal Reserve and make significant interest rate increases. Given the looming energy crisis about to hit Europe I fully expect the Euro to trade with a negative bias going forward.

The Canadian Dollar bore the brunt of the stronger US Dollar yesterday as USD.CAD traded above the 1.3100 (0.7634) level and it also lost some ground to the other currencies. A drop in commodity prices overnight including a $5 drop in the oil price did little to help the Loonie and at the moment it still looks very vulnerable to further weakness. Up today we get the Canadian GDP report for July and also the report for the 2nd quarter, the annualized GDP is expected to show a growth rate of 4.4% but the monthly number is expected to come in at 0.1% which highlights the fact that our economy is starting to slow. I don't think any of this will deter the Bank of Canada from a big interest rate hike next month which may eventually slow the pace of weakness in the Loonie.

Stocks are pointing to a small gain on the opening and were for the most part higher overnight, given the pace of volatility I would not be surprised if the Dow Jones turned negative again at some point so I fully expect the US Dollar to remain supported.