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TORONTO (Reuters) - The Canadian dollar eked out minor gains against the U.S. currency on Tuesday while trading within a narrow range, as some of the optimism created by the U.S. Federal Reserve's aggressive policy action last week started to fade.
But the Canadian dollar outperformed most other major currencies as it tracked a broader recovery in the greenback against peers like the euro and yen. <FRX/>
"When you get these pure (U.S. dollar) moves, CAD tends to get pulled along," said Adam Cole, global head of currency strategy at RBC Capital Markets in London.
The Canadian dollar finished the North American session at C$0.9746 versus its U.S. counterpart, or $1.0261, modestly firmer than Monday's finish at C$0.9753, or $1.0253.
"It's very sleepy," said David Bradley, director of foreign exchange trading at Scotiabank. "I think regardless of what the data turns out to be for the balance of the week, I think USD/CAD is going to be relatively range-bound."
The absence of new catalysts such as domestic economic data kept the currency trading within a narrow range of C$0.9765 to C$0.9730.
"I'm not really too surprised it's back in the mid-C$0.97s," said Bradley, but added, "I still think the overall interest is to buy Canadian dollars, so I would be surprised if we get a push back through C$0.98 on the top side of USD/CAD this week."
After an eight percent rally from June lows, analysts said a near-term pullback was to be expected, particularly as market focus turned to concerns about slowing global growth. <MKTS/GLOB>
The benefit of the Bank of Canada's hawkish stance was also expected to be offset by soft data.
Economists at TD Securities on Tuesday revised their outlook for the next Bank of Canada move on interest rates. They pushed back expectations for the first quarter-point hike to July 2013, from March 2013.
"While Federal Reserve policy is important in the calculus surrounding the Bank of Canada, the major determinant for Canadian monetary policy will be the outlook for domestic growth," the investment dealer said in a noted to clients.
"The second half of the year is expected to be disappointing, but we still expect trend growth in 2013."
Most Canadian primary dealers expect the Bank of Canada to hold interest rates steady until late-2013 or later. <CA/POLL>
Canadian government bond prices edged higher across the curve. The two-year bond was up 2.5 Canadian cents to yield 1.182 percent, while the benchmark 10-year bond added 26 Canadian cents, yielding 1.918 percent.
Additional reporting by Claire Sibonney; Editing by Jeffrey Hodgson