C$ softens as investors focus on the Fed

Markets have been jittery in recent weeks on speculation the Fed could start winding down stimulus measures soon, and they are looking to Fed chief Ben Bernanke's news conference on Wednesday, at the end of the US central bank's two-day federal open market committee (FOMC) meeting, for more clarity.

"It's very quiet. Everybody's caught in pre-FOMC concerns," said Mark Chandler, head of Canadian fixed-income and currency strategy at RBC Capital Markets.

"Most people are looking for some words of comfort from Bernanke. What he's going to do is simply be clear about the process it takes and how long it might take from taper to an eventual rate increase."

The Canadian dollar finished its North American session at C$1.0210 versus the greenback, or 97.94 US cents, weaker than Monday's close of C$1.0177, or 98.26 US cents. It was mixed against other major currencies.

There was no Canadian economic data released on Tuesday. South of the border, US consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilizing after a long decline, which might have comforted Fed policymakers, who would like to see stronger inflation.

Also, US housing starts rose less than expected in May, likely due to labor and material constraints, though the overall trend was consistent with a recovering housing market.

Chandler said the US numbers were slightly below expectations, but did not have much influence on the market as investor attention was centered on the Fed.

New Bank of Canada Governor Stephen Poloz will give his first official speech on Wednesday. While the speech is not expected to dominate attention, the market will keep an eye on the governor's language for direction on the central bank's policy.

Government bond prices were mixed, with the two-year bond shedding half a Canadian cent to yield 1.114 percent, and the benchmark 10-year bond dipping 2 Canadian cents to yield 2.158 percent. Longer maturities rose.