TORONTO: The Canadian dollar gained against the US dollar on Tuesday after touching its lowest level in nearly four months, as currency markets braced for a policy update from the US Federal Reserve.
The Canadian dollar ended at C$1.3189 to the greenback, or 75.82 US cents, stronger than the Bank of Canada's official Monday close of C$1.3220, or 75.64 US cents.
The currency's weakest intra-day level was C$1.3244, its lowest level since late March.
"People are getting back more to a neutral stance as we approach the central bank meetings this week," said Darcy Browne, managing director for foreign exchange sales at CIBC Capital Markets.
The Fed is expected to leave interest rates unchanged when it concludes its two-day meeting on Wednesday, with investors looking for any signs that the US central bank might be more likely to hike rates in coming months.
The Bank of Japan is also meeting this week, and most economists surveyed by Reuters expect the BoJ to expand its asset purchases and cut rates further below zero. Its two-day meeting ends on Friday.
Canada's domestic economic calendar is light this week. Data at the end of the week is expected to show that economic growth pulled back in May, likely due to the disruption caused by wildfires in Alberta.
The loonie has lost more than 2 percent so far in July, hurt as the price of oil has fallen back toward $40 a barrel after hitting $50 in June.
US crude prices fell on Tuesday, hitting three-month lows, as worries over a gasoline glut outweighed expectations of US crude stock declines, while Brent erased early losses to settle higher.
Canadian government bond prices fell across the maturity curve. The two-year price was down 3.5 Canadian cents to yield 0.595 percent while the benchmark 10-year fell 16 Canadian cents to yield 1.123 percent.
The Canada-US two-year bond spread narrowed to -16.3 basis points, while the 10-year spread came in to -44.2 basis points.
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