USD index weakens as investors start to believe in smaller interest rate hikes

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

US Dollar             1.3600-1.3700

Euro                     1.3450-1.3550

Sterling                1.5400-1.5500

WTI Oil (opening level) $84.60

The US Dollar index is weaker this morning as market sentiment about Central Banks increasing interest rates seems to have taken a big turn. Overnight the Australian Central Bank increased interest rates by a quarter point which was less than the expected half a percentage point increase. After yesterday's big rise in stocks and drop in US Treasury interest rates investors are speculating that other Western Central Banks will start to ease back on the size of their interest rate hikes. The Dow Jones had a great start to the month as it was up over 2.6% on the day, I have maintained that Stocks won't recover and the US Dollar won’t fall until we see some movement out of the world's Central Banks and this development may be the first sign of that movement.

The Canadian Dollar was able to take advantage of the weaker US Dollar yesterday with USD.CAD falling to trade at 1.3580(0.7363) before pulling back a little higher to start the day, the Loonie did not perform as well as the other currencies against the Greenback so our Dollar lost some ground to both the Euro and Pound. In terms of the British Pound, with the UK Government backing off on some of their tax cut plans Sterling has been able to hold onto its strength from yesterday, GBP.USD reached a high of 1.1410 and GBP.CAD reached a high of 1.5510 before pulling back a little so a fairly good performance by the Pound after the freefall of last week.

Nothing of significance on the calendar for today, again stocks are poised for a big gain on the opening so I look for the US Dollar to give back some more strength as markets continue to assess what global interest rates are going to do.