TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday after the Bank of Canada held interest rates steady but used less dovish language in its policy statement than some expected.
Tuesday's news of a large fall in September gross domestic product had left some in the market bracing for a more downbeat outlook from the central bank, according to Doug Porter, chief economist at BMO Capital Markets.
"If the market is at all surprised it is maybe that the Bank was not quite as dovish as some thought they might be today," Porter said.
The bank kept its benchmark rate steady at 0.5 percent, as expected, though it said vulnerabilities in the household sector continued to edge higher.
Earlier, the currency had weakened as crude oil prices retreated after a rise in U.S. inventories added to the global glut and investors were not hopeful that OPEC would cut output at this week's meeting.
U.S. private employers added 217,000 jobs in November, signaling job growth is likely strong enough to support a Federal Reserve interest rate hike this month.
Federal Reserve Chair Janet Yellen said she was "looking forward" to a U.S. interest rate hike that will be seen as a testament to the economy's recovery from recession.
The Canadian dollar CAD=D4 settled at C$1.3349 to the greenback, or 74.91 U.S. cents, firmer than the Bank of Canada's official close on Tuesday of C$1.3364, or 74.83 U.S. cents.
The currency's strongest level of the session was C$1.3309, while its weakest level was C$1.3407, a nine day low.
Against the euro, the Canadian dollar firmed to C$1.4164 after a soft inflation reading from the euro zone raised expectations for aggressive policy easing from the European Central Bank on Thursday.
Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 4.5 Canadian cents to yield 0.619 percent and the benchmark 10-year CA10YT=RR falling 21 Canadian cents to yield 1.515 percent.
The Canada-U.S. two-year bond spread was 0.8 of a basis point wider at -32.0 basis points, while the 10-year spread was little changed at -66.5 basis points.
U.S. crude CLc1 prices settled at $39.94 a barrel, down 4.56 percent, while Brent crude LCOc1 lost 3.76 percent to $42.77.
Reporting by Fergal Smith; Editing by Nick Zieminski, James Dalgleish and David Gregorio