TORONTO: The Canadian dollar firmed against its US counterpart on Tuesday as investors positioned themselves ahead of Wednesday's Federal Reserve interest rate decision.
The price of oil, a major Canadian export, remained under pressure amid a sell-off in Chinese stocks and concerns about oversupply, but was a touch higher after sliding earlier in the session.
The US central bank kicks off a two-day meeting on Tuesday and will issue its policy statement on Wednesday. Some expect the Fed to give a clearer signal as to when it will hike interest rates, with many economists forecasting September.
Slowing growth in China, the world's second largest economy, and soft commodity prices have spurred speculation that the Fed could delay a rate hike - the first since 2006 - until next year.
A US rate hike this year would be in divergence to the Bank of Canada, which has already cut rates by 25 basis points twice this year, and is expected to eventually drive the Canadian dollar toward even weaker levels.
At 8:55 a.m. EDT (1255 GMT), the Canadian dollar was trading at C$1.3003 to the US dollar, or 76.91 US cents, stronger than the Bank of Canada's official close of C$1.3045, or 76.66 US cents on Monday.
The loonie, while off 2004 lows, was still trading between C$1.2996 and C$1.3043 on Tuesday.
In Canada, data showed producer prices rose 0.5 percent in June from May due to higher prices for energy and petroleum products, as well as motorized and recreational vehicles.
US crude prices were up 0.08 percent to $47.43 a barrel, after going as low as $46.68, while Brent crude lost 0.94 percent to $52.97, after sliding to as low as $52.28.
The Canadian dollar, which was stronger than many of its currency counterparts, is expected to trade between C$1.2970 and C$1.3050 against the US dollar on Tuesday, according to RBC Capital Markets.
Canadian government bond prices were mostly lower across the maturity curve, with the two-year down 3 Canadian cents to yield 0.435 percent and the benchmark 10-year falling 41 Canadian cents to yield 1.5 percent.
The Canada-US two-year bond spread widened to -23.9 basis points, while the 10-year spread narrowed to -76.6 basis points.
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