October 20, 2014 / 2:19 PM / 3 years ago

C$ firms as investors look to Bank of Canada

Canadian loonies, one dollar coins, are displayed in this posed photograph in Toronto, October 10, 2008.Mark Blinch

TORONTO (Reuters) - The Canadian dollar firmed modestly against the greenback on Monday, boosted by figures showing an unexpected rise in domestic wholesale trade in August, while investors were looking ahead to the Bank of Canada's policy statement later this week.

Markets globally were calmer than last week, when investors fled to safe havens on worries about the outlook for the world economy. Those concerns drove the Canadian dollar to a more than five-year low but it has clawed back some gains since then.

Data showed Canadian wholesale trade rose 0.2 percent in August to the second-highest level ever. The figures surpassed market expectations for a decline of 0.2 percent.

The week's main event, however, will be the monetary policy statement from the Bank of Canada due on Wednesday. The bank will also update its economic forecasts and is widely expected to hold its key interest rate at 1 percent, where it has been for four years.

The central bank is seen likely to keep sending a cautious message, particularly in light of last week's market turmoil, even after data last week showed inflation in September was at the bank's 2 percent target. [CA/POLL]

"They'll be pointing to global growth concerns, sagging oil prices, stock market volatility as reasons to maintain their current dovish stance," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.

"I don't know if the market will necessarily react too negatively to it. We've come to expect that tone a bit, and certainly with the environment around it, it would seem justified," Mikolich said.

The Canadian dollar was at C$1.1263 to the greenback, or 88.79 U.S. cents, stronger than Friday's close of C$1.1277, or 88.68 U.S. cents.

The loonie fell as far as C$1.1385 last week, its lowest since July 2009. The previous low for 2014 had been hit in March.

In the near term, the greenback is likely to see resistance around C$1.13 to C$1.1330 against the loonie and support around C$1.1230 to C$1.1185, Mikolich said.

"Most forecasts still continue to have C$1.14s and above over the next couple quarters at least, so it would seem inevitable that we're due to spend some time up there," he said.

Canadian government bond prices were higher across the maturity curve, with the two-year up 1-1/2 Canadian cents to yield 0.970 percent and the benchmark 10-year up 22 Canadian cents to yield 1.927 percent.

Editing by Peter Galloway

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