TORONTO: The Canadian dollar rose against the US dollar on Wednesday after the Bank of Canada held interest rates steady but used less dovish language in its policy statement than some expected.
Tuesday's news of a large fall in September gross domestic product had left some in the market bracing for a more downbeat outlook from the central bank, according to Doug Porter, chief economist at BMO Capital Markets.
"If the market is at all surprised it is maybe that the Bank was not quite as dovish as some thought they might be today," Porter said.
The bank kept its benchmark rate steady at 0.5 percent, as expected, though it said vulnerabilities in the household sector continued to edge higher.
The currency had earlier weakened as crude oil prices retreated after a rise in US inventories added to the global glut and investors discounted the possibility of OPEC cutting output at this week's meeting.
US private employers added 217,000 jobs in November, signaling job growth is likely strong enough to support a Federal Reserve rate hike this month.
At 10:51 a.m. EST (1551 GMT), the Canadian dollar was trading at C$1.3335 to the greenback, or 74.99 US cents, firmer than the Bank of Canada's official close of C$1.3364, or 74.83 US cents.
The currency's strongest level of the session was C$1.3309, while its weakest was C$1.3407, a nine-day low.
Against the euro, the Canadian dollar strengthened to C$1.4101 after a soft inflation reading from the euro zone raised expectations for aggressive policy easing from the European Central Bank on Thursday.
Canadian government bond prices were lower across the maturity curve, with the two-year price down 5 Canadian cents to yield 0.622 percent and the benchmark 10-year falling 29 Canadian cents to yield 1.524 percent.
The Canada-US two-year bond spread was 1.5 basis points wider at -32.7 basis points, while the 10-year spread was 1.1 basis points wider at -65.9 basis points as Treasuries underperformed on the US data.
US crude prices were down 2.41 percent to $40.84 a barrel, while Brent crude lost 1.89 percent to $43.60.
Federal Reserve Chair Janet Yellen could cement the case for a rate hike when she speaks on the economic outlook before the Economic Club of Washington at 12:25 p.m. EST (1725 GMT).
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