September 4, 2012 / 1:47 PM / 5 years ago

Canadian dollar edges higher on central bank hopes

TORONTO (Reuters) - The Canadian dollar tested recent highs against the U.S. currency on Tuesday, helped by hopes the U.S. and European central banks will take action to boost their economies, with an election in the province of Quebec providing little direction.

French-speaking Quebec is heading to the polls today and the province’s separatist Parti Quebecois is expected to return to power.

“Surprisingly enough, very few people are talking about that ... I thought it might have more of an impact, but it seems like the market is very complacent about it,” said David Bradley, director of foreign exchange trading at Scotiabank.

Instead, the Canadian currency took its cues from abroad.

The euro hovered near a two-month high against the U.S. dollar on optimism the European Central Bank will unveil steps to tackle the region’s debt crisis this week. The ECB is meeting this week to decide on a bond-buying scheme to help lower Spanish and Italian borrowing costs.

The Canadian dollar closed at its strongest level since April on Friday after Federal Reserve Chairman Ben Bernanke said the U.S. central bank would take stimulus action as needed and after data showed the Canadian economy grew at a quicker pace than expected in the second quarter.

At 9:08 a.m. EDT (1308 GMT) the Canadian dollar was at C$0.9851 versus the U.S. dollar, or $1.0151, stronger than Friday’s North American session close of C$0.9857, or $1.0145.

Earlier in the session, it touched C$0.9843, or $1.0160, matching the high of last week, which was also the strongest level since May.

“We tested this level in the low 40s for the third time and it’s holding again,” said Bradley.

“It kind of feels to me as though the next time we have a test at that level it’s going to break a little bit lower,” he added.

Bradley said recent mergers and acquisition activity, which has mostly involved foreign players bidding for Canadian companies, has helped support the Canadian dollar. Talk of national banks putting more of their reserves into commodity currencies like the Canadian dollar has also been supportive, he added.

Canada’s dollar was stronger against most other major currencies on Tuesday, including the Australian dollar and euro.

On Wednesday, the Bank of Canada will be announcing its next interest rate decision, while Canada will be releasing employment data on Friday.

The Bank of Canada is expected to leave interest rates unchanged, so investors are focused on whether Governor Mark Carney will change the message that the central bank may need to hike rates.

Editing by Jeffrey Hodgson

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