TORONTO: The Canadian dollar strengthened slightly in subdued trade on Wednesday ahead of a Bank of Canada policy decision and economic outlook that will be closely watched for hints of a shift in monetary stance.
The central bank is broadly expected to hold rates steady as it balances a fragile domestic economy and cooling housing market with an anticipated rebound in global growth.
At the same time, the bank will update its economic predictions, with most watchers expecting a scaling back of what appears to have been overly optimistic forecasting.
"There is obviously a degree of reticence to do too much ahead of the Bank," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.
At 8:14 a.m. (1314 GMT) the Canadian dollar was trading at C$0.9918 to the greenback, or $1.0083, compared with C$0.9927, or $1.0074, at Tuesday's North American close.
The Canadian central bank had previously predicted growth of 2.3 percent for 2013, which Stretch called "a rather ambitious target".
"I think we will see that growth number revised lower, it is a question of how far it's revised lower," he said. "The lower the growth number, the greater the time horizon required to close the output gap and that has implications for the tightening bias," he said.
Unlike most of its developed economy peers, Canada's central bank has indicated it will look to raise interest rates once conditions allow, which economists has interpreted to mean late this year or early in 2014.
Helping its case, the three most recent data imprints for the domestic economy have come in stronger than expected.
The price of two-year bonds was up 1 Canadian cent to yield 1.169 percent, while the benchmark 10-year bond rose 7 Canadian cents to yield 1.905 percent.
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