TORONTO: The Canadian dollar gained against the US dollar on Tuesday, as traders scaled back bets on greenback strength and loonie weakness a day ahead of pivotal central banker appearances in both the United States and Canada.
The comments by Federal Reserve Chairman Ben Bernanke in particular are likely to reverberate, with heightened uncertainty making sharp cent-plus moves a distinct possibility.
"The market is wound up and confused by Fed rhetoric. Hopefully there's some clarity, but if there is, traders are going to jump on it," said Adam Button, currency analyst at ForexLive in Montreal.
Fed officials have sought to sound less hawkish since Fed Chairman Ben Bernanke's mid-June statement that the bank could scale back its stimulus efforts roiled global markets.
Traders in the Canadian currency will also be looking to the first interest-rate decision by new Bank of Canada Governor Stephen Poloz on Wednesday, which coincides with a quarterly Monetary Policy Report outlining the central bank's view of the economy.
Economists polled by Reuters expect the central bank to leave its benchmark rate unchanged at 1 percent and repeat its warning that the next move in rates will be an increase.
But with slow growth and low inflation, a rate increase is not expected until the fourth quarter of 2014.
The Canadian dollar has recently come under pressure from a rising US dollar valuation and bets that the Canadian currency had further to fall, although that move stalled last week.
"Given the tremendous uncertainty tomorrow, with a new Bank of Canada governor, we're seeing those bets being scaled back or exited in rapid fashion today," Button said. "It's a massive case of cold feet."
Greg Moore, a currency strategist at TD Securities in Toronto, said there is a risk that the central bank will send a more neutral message, which could prompt further Canadian dollar weakness.
Domestic data released on Tuesday had little impact.
Canadian factory sales in May rose 0.7 percent from April, making up some of the ground lost during a plunge that month.
The "numbers were close enough to consensus; it didn't give a strong signal in either direction," Moore said.
The Canadian dollar ended the session trading at C$1.0366 to the greenback, or 96.47 US cents, compared with C$1.0415, or 96.02 US cents, at Monday's North American close.
At one point, it traded as low as C$1.0442 to the US dollar, or 95.77 US cents, its weakest level since July 11.
The loonie, as Canada's currency is colloquially known, fell sharply against its commodity-linked cousin, the Australian dollar, after minutes from that country's last central bank meeting provided a less dovish message than investors were expecting.
The price of Canadian government debt was higher across the curve, with the two-year bond up 2 Canadian cents to yield 1.122 percent, while the benchmark 10-year bond rose 10 Canadian cents to yield 2.404 percent.
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