4 Min Read
* Canadian dlr buoyant after c.bank hints at rate hike
* Dollar steady as Fed's 2-day meeting eyed
* Sterling inches up after Monday's falls
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
PARIS, June 13 (Reuters) - The Canadian dollar climbed in an otherwise quiet trading day on Tuesday, hitting its highest level in nearly two months after comments from Canada's central bank raised the prospect that interest rates could rise as soon as this year.
The U.S. dollar appeared to be treading water, as traders awaited the start of a two-day meeting of the U.S. Federal Reserve for signals on the pace of future monetary tightening.
Bank of Canada Senior Deputy Governor Carolyn Wilkins said late on Monday that first-quarter growth in the North American country had been "pretty impressive", and that signs economic growth was broadening would lead the central bank to consider whether current low rates would still be required.
The comments sent the Canadian dollar - or the "loonie", as it is known by traders - to its highest level in almost two months, with the currency gaining almost 1.5 percent late on Monday and early on Tuesday to trade at C$1.3269 against its U.S. counterpart.
While many economists had expected the bank to start raising in 2018, markets were pricing in a 52 percent chance of a hike by the end of 2017 following Wilkins' speech.
"The market had been overlooking the strengthening economic data from Canada, and obviously now that we’re starting to see some change in communication from the Bank of Canada to acknowledge that ... the market won’t be able to look through that," said MUFG currency economist Lee Hardman, in London.
"The shift to a more hawkish stance will offer the potential for the Canadian dollar to strengthen further from here."
The U.S. dollar was steady against a broad basket of currencies, while the euro held just above $1.12.
With the Fed widely expected to raise interest rates when it concludes its meeting on Wednesday, investors' focus will be on any fresh hints on the pace of hikes in the months to come, and its assessment of the economy and outlook on inflation.
Investors will also be watching for any fresh details on the central bank's plans for trimming its balance sheet.
"Given that the minutes (of the last Fed meeting) contained lots of details, one possible scenario is that there will be an announcement in June and that it will start in September," said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo, referring to the Fed's possible balance sheet reduction.
The greenback firmed a little against the yen, trading up 0.2 percent on the day at 110.18 yen. The Bank of Japan holds a policy meeting on Thursday and Friday.
Sterling edged up from seven-month lows plumbed the previous day against the euro, though investors were still cautious, viewing the pound as vulnerable to political uncertainty after the shock outcome of last week's elections, in which voters denied any party a parliamentary majority.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Masayuki Kitano in Singapore; Editing by Andrew Heavens)