* Bonds rally across curve, outperform Treasuries
* Bank of Canada interest rate decision at 9 am Wednesday (Updates to close, adds details, commentary)
By Claire Sibonney
TORONTO, Sept 6 (Reuters) - The Canadian dollar eased against the U.S. dollar on Tuesday as renewed euro zone fears and the Swiss central bank’s move to curb strength in the franc helped the greenback as an alternative safe-haven currency.
The Swiss National Bank shocked markets by setting a limit on how much its currency can climb against the euro, while risk aversion bubbled up across global markets on worries the European debt crisis is worsening. [FRX/] [MKTS/GLOB]
Nervous investors channeled cash into less risky assets as doubts resurfaced over Italy and Greece’s willingness to implement tough budget and debt measures demanded by other euro zone members, while Germany hardened its stand against giving them more aid. [nL5E7K61RE].
“Europe is by no means resolved ... we are going to go through waves of turbulence,” said Derek Burleton, deputy chief economist at Toronto-Dominion Bank. “It’s going to create a very volatile Canadian-dollar environment.”
Following disastrous U.S. employment data last Friday, traders are also looking to the Bank of Canada’s policy announcement on Wednesday at 9 a.m. (1300 GMT), and Canadian jobs data at the end of the week. [ID:nN1E78119P] [ID:nN1E780102]
“Clearly the backwash from Friday’s (U.S.) payrolls isn’t particularly encouraging but I think it’s more so on the euro zone side of the equation,” said Jeremy Stretch, head of currency strategy at CIBC in London.
“When we were seeing Italian spreads and yields moving up fairly dramatically yesterday, I think that was a sign that the risk parameters are continuing to climb once again.”
The Canadian currency CAD=D4 ended the North American session at C$0.9898 to the U.S. dollar, or $1.0103, down from Friday’s North American session close of C$0.9842 to the U.S. dollar, or $1.0161. Most North American markets were closed on Monday for the Labor Day holiday.
Earlier on Tuesday, the Canadian dollar fell as low as C$0.9967, or $1.0033, its weakest level since Aug. 11, but better-than-expected U.S. services sector data helped the currency recover somewhat. [nN1E7850QA]
Looking to the Bank of Canada decision on Wednesday, TD’s Burleton said there should be little surprise that the central bank will sound more dovish than it did at its last statement in July, though markets could still be pricing in a shift in its language.
A Reuters survey of Canada’s 12 primary securities dealers [nN1E77I1EV] and a separate Reuters poll of 43 forecasters [CA/POLL] unanimously predict the Bank of Canada will keep its overnight target rate at 1 percent.
“The market pretty much can telegraph what is going to be said tomorrow in the Bank of Canada’s communique,” said Burleton.
“They’ve already indicated that their growth forecasts are looking weaker than they were and I think they will just be reinforcing some of these expectations.”
Canadian bond prices rose across the curve, slightly outperforming U.S. Treasuries. [US/]
The two-year bond CA2YT=RR was up 18 Canadian cents to yield 0.864 percent, while the 10-year bond CA10YT=RR rallied 56 Canadian cents to yield 2.241 percent. (Editing by Jeffrey Hodgson)