TORONTO (Reuters) - Canada's dollar was slightly higher against its U.S. counterpart on Tuesday, lifted by improving investor sentiment about Europe's economy, while investors awaited the Bank of Canada's rate announcement due later in the morning.
The currency tracked the broader trend in global equities, which got a boost from a Spanish debt sale that went smoothly and German data that provided an upbeat reading of the euro zone's largest economy. Both events gave investors some relief about the region's debt crisis. <MKTS/GLOB>
But markets in Canada will be squarely focused on the central bank interest rate announcement and accompanying statement.
The Bank of Canada looks set to keep interest rates steady at 1 percent, but will likely keep with the more hawkish tone it has adopted in the past month and may even add an explicit mention of eventual rate increases.
The central bank has frozen its overnight lending target at the extremely low level for 19 months and is seen standing pat until the second quarter of 2013, according to the median forecast in a Reuters poll of 40 analysts. <CA/POLL>
"We're not expecting any moves on interest rates, but the focus will be on the tone of the statement," said Matt Perrier, a director of foreign exchange sales at BMO Capital Markets.
"We've certainly seen (Governor Mark) Carney be a little more upbeat and I guess slightly more hawkish than he has been. To the extent that the statement has a hawkish tone to it you could see the Canadian dollar appreciate a little bit further."
At around 7:50 a.m. EDT (1150 GMT), the Canadian dollar was at C$0.9964 versus the U.S. dollar, or $1.0036, slightly higher than its North American finish on Monday at C$0.9997 versus the U.S. dollar, or $1.0003.
Perrier said the Canadian currency could see short-term resistance at C$0.9925-35 against the greenback, but that the broader trading range is between C$0.9850-C$1.0050.
Firmer U.S. stock futures, oil and metals prices also supported the Canadian currency's move higher. The market is also eyeing domestic manufacturing sales data.
Canadian government bond prices sank across the curve, with Canada's two-year bond down 4 Canadian cents to yield 1.255 percent. The 10-year bond retreated 19 Canadian cents to yield 2.036 percent.
Reporting By Jennifer Kwan; Editing by Chizu Nomiyama