July 11, 2012 / 9:01 PM / in 5 years

Canada dollar gains with commodities, Fed minutes weigh

Images of the front and the back of the new Canadian 50 dollar bill, made of polymer, are seen on display before a news conference in Quebec City, March 26, 2012.Mathieu Belanger

TORONTO (Reuters) - Canada's dollar closed stronger against the U.S. currency on Wednesday, helped by higher commodity prices, but gains were limited by a less-dovish-than-expected U.S. Federal Reserve and concerns about Europe's debt crisis.

U.S. stocks, typically a gauge of how willing investors are to buy riskier assets, fell as minutes from the last Federal Reserve meeting showed policymakers are open to the idea of providing more economic stimulus, but that conditions might need to worsen for a consensus to build. .N

"It looks like the Fed is content to wait things out a little longer," said Steve Butler, managing director of foreign exchange trading at Scotiabank.

"Equities have turned around on a less dovish FOMC minutes and just general malaise in the market. Risk sentiment seems to be still on the negative side."

After climbing early in the session, Canada's currency managed to eke out a gain and ended at C$1.0199 versus the U.S. dollar, or 98.05 U.S. cents, slightly firmer than Tuesday's North American session close at C$1.0226 against the greenback, or 97.79 U.S. cents.

It drew support from firmer oil and gold prices. <O/R>

"We're seeing a small boost to the Canadian currency coming from higher commodity prices," said Charles St-Arnaud, economist and currency strategist at Nomura Securities in New York.

"That's helping to support the Canadian dollar. But there's still concern out there about what's happening in Europe."

HITS TWO-YEAR HIGH VS EURO

Canada's dollar has ebbed and flowed in recent sessions on global economic data and developments related to the euro zone's financial stability.

Most recently, a German debt sale underlined the growing lack of faith by some investors in measures agreed by European policymakers last month to combat the crisis, including help for Spain's banks and allowing the region's new rescue fund to buy government debt.

These concerns were heightened by lack of clarity from euro zone finance ministers on implementing the measures and questions about when Germany's Constitutional Court would give its verdict on the new regional bailout fund, known as the European Stability Mechanism.

The Canadian dollar outperformed against several major currencies including the euro on Wednesday, rising to C$1.2461, or 80.25 euro cents, its strongest since June 2010.

But the Canadian currency did weaken to its lowest level since March against its Australian counterpart.

Currency traders were looking ahead to next week's rate setting announcement by the Bank of Canada.

A Reuters poll showed the Bank of Canada is expected to keep interest rates on hold until the second quarter of 2013, as a slowing global economy hurts the domestic outlook and as Ottawa's new mortgage rules take pressure off the central bank to cool the country's housing market. <CA/POLL>

Canadian bond prices were lower across the curve. The two-year government bond was down 6 Canadian cents to yield 0.995 percent, while the benchmark 10-year bond sank 16 Canadian cents to yield 1.671 percent.

Editing by Jeffrey Hodgson

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