CANADA FX DEBT-C$ hits 2-1/2 year high ahead of BoC
* C$ hits fresh 2-1/2 year high of $1.0166
* Bonds flat ahead of BoC announcement
By Claire Sibonney
TORONTO, Jan 18 (Reuters) - The Canadian dollar climbed to a two-and-a-half year high against the U.S. dollar as traders positioned themselves in anticipation of a hawkish statement by the Bank of Canada in its policy decision on Tuesday.
The central bank is scheduled to announce its interest rate decision at 9 a.m. (1400 GMT), where it is widely expected to hold its overnight target rate at 1 percent. [ID:nN25118365] [CA/POLL]
Some analysts said the bank may use more bullish language to prepare the market for the resumption of interest rate hikes later this year. Higher rates tend to strengthen a currency by attracting capital flows.
"Markets are showing some signs of moderate liquidity from overnight. There is small buying of CAD with anticipation that there's going to be some hawkish comments coming from the bank but still no bets on any sort of a hike today," said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.
Overnight, the currency CAD=D4 hit a session high of C$0.9837 to the greenback, or $1.0166, its best level since since May 2008, with firmer oil prices and sovereign demand also seen providing a lift.
"Everybody is looking for some form of guidance within the commentary and all bets so far seem to be that there's signs of bullishness when it comes to rates in Canada in the near future ... the next three meetings definitely seem to be on close watch," Gavsie added.
At 7:40 a.m. (1240 GMT), the currency stood at C$0.9851 to its U.S. counterpart, or $1.0151, up from Monday's North American finish at C$0.9872, or $1.0130.
Gavsie said the Canadian dollar could potentially challenge C$0.9800 following the bank's announcement. However if the market does not get what it's looking for in the commentary, that could weaken the Canadian dollar to a support level around C$0.9915, still above parity against the greenback.
Near term, Gavsie said there is strong belief in the foreign exchange community that the Canadian dollar could still run up another cent or two, despite global uncertainties.
Ahead of the Bank of Canada's decision bonds were little changed, including the interest rate-sensitive two-year bond CA2YT=RR, down half a Canadian cent to yield 1.793 percent. The 10-year bond CA10YT=RR was flat, yielding 3.256 percent.
(Additional reporting by London forex team, Editing by Chizu Nomiyama)
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