TORONTO: The Canadian dollar firmed against the greenback on Monday, recovering from a more than five-month low hit overnight as the currency pairing backed away from resistance at C$1.11.
Investors started the week with some major events on the horizon, including a policy statement by the US Federal Reserve on Wednesday and a speech from the head of the Bank of Canada on Tuesday.
Also, Scotland's referendum on whether to leave the United Kingdom will come on Thursday, and a vote for independence would likely roil markets.
The US dollar strengthened through some key resistance levels against the loonie last week and took a run at piercing the next barrier at C$1.11 in the overnight session but was unable to push above it.
"The fact that we couldn't get above the C$1.11 suggests that the market is very much in a wait-and-see attitude with those three important items this week," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.
The Canadian dollar ended the North American session at C$1.1050 to the greenback, or 90.50 US cents, stronger than Friday's close of C$1.1094, or 90.14 US cents.
The loonie shrugged off a number of weak economic figures from China that came out over the weekend and had prompted some economists to trim their growth forecasts for the country. The Canadian currency is often sensitive to economic news from China, which is a major consumer of resources.
Stephen Poloz, governor of the Bank of Canada, will speak on the topic of the role of a floating exchange rate in his first speech since the central bank reaffirmed its neutral policy stance in a statement earlier this month. Poloz's speech will be followed by a press conference.
The Fed statement is likely to be the biggest event of the week, with investors speculating the central bank could provide insight on when interest rates will start to rise. Any hint that a rate hike will come sooner rather than later would likely boost the greenback to the loonie's detriment.
A market reassessment of the Fed's next moves caused the Canadian dollar to lose nearly 2 percent last week, a selloff that leaves it poised for a bounce-back if Fed Chair Janet Yellen is more dovish than expected when she holds a press conference Wednesday, said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.
"That being said, that's probably an outlier in terms of probability. The most likely scenario is that we see a little bit more of a hawkish rhetoric from the Fed," Smith said.
Canadian government bond prices were higher across the maturity curve, with the two-year up 1-1/2 Canadian cents to yield 1.151 percent, and the benchmark 10-year up 5 Canadian cents to yield 2.236 percent.
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