US Dollar Rebounds on Steady Fed Rates Despite Inflation Drop

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

US Dollar        1.3700-1.3800

Euro                 1.4800-1.4900

Sterling            1.7500-1.7600

WTI Oil (opening level) $77.46

The US Dollar index is marginally stronger this morning as it recovered from yesterday's drop after the inflation report and the announcement from Federal Reserve in the afternoon. The US May inflation rate dropped to 3.3% down from 3.4% and the Core rate dropped to 3.4% from 3.5%. There was nothing in this report to change the minds of Fed members so as expected they did not lower their key lending rate and actually downplayed the prospects for rate cuts at all this year. Most forecasters are now pricing in one rate cut in December but if a drop in US inflation remains difficult to achieve then it may be possible that we do not get any rate cuts this year. At the start of the year economists were expecting at least three cuts so this is a fairly big change in thinking. With interest rates remaining where they are the US Dollar should remain supported over the next few months.

The Canadian Dollar survived the day intact as it range traded around the 1.3750 (0.7273) level for most of the day. The Loonie lost a little ground against the Euro but for the most part it was a non-event.

The Calendar is quiet for the rest of the week with only some producer price reports due out today that might catch the eye of the market. Stocks were a mixed bag yesterday but are pointing to a big drop on the opening so the US Dollar should remain supported throughout the day.