CANADA FX DEBT-C$ turns higher ahead of Fed, bonds lower
* C$ charges off overnight low of C$1.1077
* Canada's trade deficit shrinks in June
* Bond prices stuck lower across curve (Recasts)
By Frank Pingue
TORONTO, Aug 12 (Reuters) - The Canadian dollar bounced off a three-week low and turned higher on Wednesday as the greenback relinquished recent gains on caution ahead of the U.S. Federal Reserve policy statement due later in the day.
The turn higher follows a string of four straight lower closes versus the U.S. dollar as falling equities dented demand for riskier currencies.
"What we're seeing is a reversal of the past couple trading sessions where we saw risk off and U.S. dollar bid scenarios no matter what was coming out," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
The pullback in the U.S. currency came although the Fed is widely expected to hold its benchmark overnight rate in a range of zero to 0.25 percent. Market focus will be on the Fed's statement and how the U.S. central bank characterizes the recovery. [ID:nN10470294])
At 11:25 a.m. (1525 GMT), the Canadian unit was at C$1.0899 to the U.S. dollar, or 91.75 U.S. cents, up from C$1.1015 to the U.S. dollar, or 90.79 U.S. cents, on Tuesday.
That was also up from the overnight low C$1.1077 to the U.S. dollar, or 90.28 U.S. cents, which marked a new three-week low for the currency.
Also aiding the Canadian dollar was data that showed Canada's trade deficit came in at a much smaller than expected C$55 million in June from C$1.1 billion in May. [ID:nN12380828]
Askari noted that there is little liquidity in the market given the generally quiet August trading period, which he said was likely contributing to the big swings in direction for the Canadian dollar.
Canadian Finance Minister Jim Flaherty, speaking to reporters after three days of meetings in Beijing, said global policymakers must secure a rock-solid economic recovery before they turn their attention to exit strategies from stimulus policies or a discussion of exchange rates.
Flaherty also repeated that the positive signs in the economy have been encouraging but tentative. [ID:nPEK61145]
BOND PRICES ALL LOWER
Canadian bond prices were lower across the curve, mirroring the direction in the bigger U.S. Treasury market, as a rally in North American equities dampened the attraction of safe-haven government debt.
But the move was limited ahead of Fed's policy statement, which may contain clues to whether the central bank may tweak its Treasury purchases, the pillar of its quantitative easing strategy for reviving the economy.
The two-year Canadian bond was down 1 Canadian cent at C$99.29 to yield 1.353 percent, while the 10-year bond slipped 37 Canadian cents to C$101.68 to yield 3.545 percent.
The 30-year bond slipped 55 Canadian cents to C$116.40 to yield 4.015. In the United States, the 30-year bond yielded 4.479 percent. (Editing by Peter Galloway)
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