TORONTO (Reuters) - The Canadian dollar strengthened modestly against the greenback on Wednesday, though the currency was expected to hew to a narrow rage with investors turning their attention to the domestic employment report at the end of the week.
Reaction to Wednesday’s Canadian housing data was muted after a report showed housing starts unexpectedly rose in June. Later in the day, markets will get the minutes from the U.S. Federal Reserve’s most recent policy meeting.
But the loonie is expected to be constrained until Friday’s employment report and, beyond that, next week’s Bank of Canada meeting. The economy is forecast to have added 20,000 jobs last month.
Investors are waiting to see how the Bank of Canada will react to recent surprisingly strong inflation data after the central bank has repeatedly flagged its concerns about the low inflation environment.
“Employment on Friday is going to be just a preamble for the Bank of Canada next week,” said Martin Schwerdtfeger, FX strategist at TD Securities in Toronto.
“For the Bank of Canada, we think they are going to balance once again inflation coming higher relative to their previous projections with GDP coming lower.”
Analysts expect that will allow the central bank to maintain the neutral tone it has held since October.
“They have no incentive whatsoever to modify market expectations at this point in time,” said Schwerdtfeger.
The Canadian dollar CAD=D4 was at C$1.0672 to the greenback, or 93.70 U.S. cents, slightly stronger than Tuesday’s close of C$1.0677, or 93.66 U.S. cents.
Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR off 1 Canadian cent to yield 1.121 percent and the benchmark 10-year CA10YT=RR down 3 Canadian cents to yield 2.256 percent.
Editing by Nick Zieminski