January 16, 2014 / 9:34 PM / 4 years ago

C$ gets relief against greenback; eyes on central bank

TORONTO (Reuters) - The Canadian dollar firmed against the greenback on Thursday as the loonie got some relief from its recent selloff, though investor focus remained on next week's Bank of Canada meeting and the possibility the central bank could sound more dovish.

The Canadian currency got some support from data that showed foreign investment in Canadian securities nearly doubled to C$8.66 billion ($7.94 billion) in November, with bond purchases reaching their second-highest level of the year.

The loonie has been on a downward trend since late October when the Bank of Canada abandoned any talk of rate hikes in its policy statement after 18 months of signaling that tightening was on the horizon.

The Canadian dollar entered 2014 with most analysts expecting the currency to weaken, but the swiftness of its drop has surprised some. Just two weeks into 2014, the U.S. dollar has appreciated nearly 3 percent against the Canadian currency.

"The market has been waiting for a little steam to come off the top of this U.S. dollar-Canadian dollar rally we've seen," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

The Canadian dollar ended the North American session at C$1.0925 to the greenback, or 91.53 U.S. cents, stronger than Wednesday's close of C$1.0945, or 91.37 U.S. cents. The loonie touched a more than four-year low on Wednesday.

"At this point, I don't think it's unreasonable to see us move back into the C$1.08 level, we could continue to see a little bit of consolidation here," said Smith.

"That said, I don't think there's a lot of room for the loonie to put in too many strong gains. The big risk on most traders' radar is going to be the Bank of Canada rate statement next week."

After disappointing economic data last week, including a jobs report that showed the unemployment rate rose back up above 7 percent, markets are speculating the Bank of Canada could sound more accommodative at its policy-setting meeting on January 22.

Though one jobs report is unlikely to sway the Bank of Canada from its course just yet, traders are becoming a little more careful, said Rahim Madhavji, president at Knightsbridge FX.com in Toronto.

"We'll probably hit C$1.10 at some point next week, but I think at that point we're starting to get quite rich," said Madhavji.

"At that point, we'll stay the course until the Canadian economy picks up in the mid- to latter half of the year where you start to see the Canadian dollar rebound a bit as the Bank of Canada gains a little more confidence."

Canadian government bond prices were higher across the maturity curve, with the two-year up 5-1/2 Canadian cents to yield 1.041 percent and the benchmark 10-year up 45 Canadian cents to yield 2.525 percent.

Editing by Meredith Mazzilli

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