TORONTO: The Canadian dollar strengthened against the greenback on Wednesday, boosted by renewed risk appetite on hopes for a de-escalation of geopolitical tensions, but the main focus was on the Bank of Canada's monetary policy statement later in the morning.
Markets broadly were lifted after Ukraine said its president had agreed with Russia's Vladimir Putin on steps towards a "ceasefire regime" in Kiev's conflict with pro-Russian rebels. But the Kremlin denied any actual truce deal.
The news was resulting in "a reason for this flight out of safety and Canada is benefiting a bit," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.
"I don't know if it's going to necessarily have a lasting impact but it looks like the market was looking for a relief from that."
A Bank of Canada interest rate decision, due at 10:00 am ET (1400 GMT), will be the main domestic event of the day. While the central bank is widely expected to hold rates at 1 percent, where they have been since 2010, investors will parse the tone of the bank's statement.
Although the bank is expected to stick to a cautious message, "it's getting harder for them to keep up the dovish rhetoric in light of the fact that we have ... relatively good economic data, although still some slower pockets," said Mikolich.
The Canadian dollar was at C$1.0908 to the greenback, or 91.68 US cents, stronger than Tuesday's close of C$1.0930, or 91.49 US cents.
The loonie has seen some choppy trading in recent sessions following a large one-day gain last week due to fund flow speculation stemming from Burger King's bid to buy Tim Hortons.
"With what seems to be a lot of the major flows around the Tim Hortons deal passing now, with two major Canadian dollar buying sprees last week, the return to the mid-C$1.09s seemed like a natural place to go," said Mikolich.
Canadian government bond prices were lower across the maturity curve, with the two-year down half a Canadian cent to yield 1.130 percent and the benchmark 10-year down 4 Canadian cents to yield 2.098 percent.
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