Dollar Strength Faces Tests: ECB Update, Bank of Canada's Influence, and US GDP Report

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

US Dollar        1.3450-1.3550

Euro                1.4650-1.4750

Sterling           1.7150-1.7250

WTI Oil (opening level) $75.65

The US Dollar Index is marginally stronger this morning as the Euro weakened off overnight. The market is awaiting word this morning from the ECB but it is fully expected that they will keep interest rates on hold just like other Western Central Banks, much like the US market the EU market will be watching to see if the ECB talks about future interest rate cuts and how soon they will happen. I think it is unlikely that they will indicate interest rate cuts are imminent so the Euro should remain supported and the Dollar give back some limited strength.

The Canadian Dollar is a little weaker this morning in response to the Bank of Canada activity yesterday. The Bank announced as expected that they would keep the interest rate at 5% but indicated that interest rate hikes are now most likely finished but any interest rate cuts would depend on the inflation rate which they see staying near 3% until the end of the year when it starts to move closer to 2%. This was pretty much expected from the Bank so with no surprises our Dollar fell back a little but continues to range trade near the 1.3500 (0.7407) level.

On the calendar today we also get the first look at the US 4th quarter GDP report and it is expected that the economy grew at 2% in the fourth quarter which is lower than the the 4.9% rate seen in the third quarter and the lowest growth rate in 6 quarters. Any number less than 2% would be very bad for the economy and may force the Fed to cut interest rates before they want to which would hurt the US Dollar. We could see some enhanced volatility today so make sure you have your orders in place to take advantage of it.