* C$ closes at C$0.9797 to the U.S. dollar, or $1.0207
* Bonds firmer across curve, tracking U.S. Treasuries
TORONTO, June 8 (Reuters) - Canada's dollar softened against its U.S. counterpart on Wednesday as dovish comments by the Federal Reserve and risk aversion lessened the currency's appeal, but a rise in crude prices helped cushion some of weakness.
Oil prices jumped after OPEC failed to reach a deal to increase output, raising fears of supply shortages later this year that could fuel another price rally. Canada is the main energy supplier to the United States and the currency is often sensitive to movements in crude prices. [O/R]
"Like all currencies, it's taken a bit of a hit, as we've got some risk aversion going on. Lack of risk appetite seems to be a common theme recently," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
"Compared to other currencies outside of (the U.S. dollar) though it's holding in reasonably well. One of the factors may be that oil prices got a bit of a boost as OPEC couldn't come to any agreement."
Fed Chairman Ben Bernanke acknowledged on Tuesday that the economy in the United States -- the destination for most Canadian exports -- has slowed, but offered no hints of further monetary easing. [ID:nN07142566]
"The thing that I'm taking out of it is he's saying inflation is going to be temporary," said John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm.
"If they're not going to raise interest rates, neither is Canada because we can't get too far ahead the States."
Higher interest rates tend to support currencies by attracting international capital flows. A recent poll showed Canada's central bank is expected by many to resume its rate hike campaign in September. <CA/POLL>
The currencyfinished the session at C$0.9797 to the U.S. dollar, or $1.0207, down from Tuesday's North American finish of C$0.9755 to the U.S. dollar, or $1.0251.
A report on Wednesday showed Canadian housing starts rose in May to a slightly higher than expected seasonally adjusted annual rate of 183,600 units, boosted by a pickup in multiunit buildings like condominiums, but analysts said the numbers were not sufficiently dramatic to drive the currency. [CAHSTA=ECI]
With analysts like Curran calling much of Canada's economic data "mediocre at best", investors are now focused on Friday's employment numbers.
"People are keeping their powder dry for Friday's (job) number... You see a lousy number on Friday, we'll be trading on a C$0.9900 handle for sure," he said.
Chandler said that even with a good employment report investors will still wonder how markets will perform once quantitative easing is over in the United States.
"Any relief, even if we get good domestic data, the risk backdrop may not be all that beneficial for the Canadian dollar," said Chandler.
Canadian bond prices were firmer across the curve, tracking a rally in U.S. treasuries after Bernanke's comments. [US/]
The two-year bondwas up 2.5 Canadian cents to yield 1.432 percent, while the 10-year bond added 19 Canadian cents to yield 3.009 percent.
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