Canada dollar flat again, bonds down ahead of Fed

By Cameron French

TORONTO - The Canadian dollar barely budged versus the greenback for a third straight day on Wednesday, while bonds edged lower as a nervous market continued to sit on its hand ahead of Thursday's U.S. Federal Reserve interest rate announcement.

The currency has traded sluggishly all week as market players ponder whether the Fed will raise rates by a quarter or half percentage point, and to what extent inflation fears will prompt it to issue a hawkish statement.

The Canadian dollar finished at C$1.1223 to the U.S. dollar, or 89.10 U.S. cents, up a touch from C$1.1226, or 89.08 U.S. cents, at Tuesday's North American session close.

"We haven't gone anywhere of any significance since last Friday. The market's basically trapped in this trading range, and I don't think it's going to be any more exciting until tomorrow, when we get some direction from the Fed," said George Davis, chief technical strategist at RBC Capital Markets.

While the Fed is expected to raise its key rate to 5.25 percent from 5 percent, a larger increase or a firm suggestion of a future move would likely drive the greenback higher, and pull the Canadian currency further from the 28-year highs it hit last month.

If not for the Fed jitters, market conditions would suggest the Canadian dollar is primed for more gains, as crude oil prices have crept higher, while a complicated mining battle involving bids for Canadian miners Falconbridge (FAL.TO: ) and Inco (N.TO: ) promises to boost merger-related demand for the currency.

"I think given that uncertainty that's out there, there really isn't much incentive for people to position themselves either way right now," Davis said.

The currency walked a narrow range of 88.74 U.S. cents to 89.22 U.S. cents on Wednesday.

While most attention will be on the Fed on Thursday, the Canadian market will also keep an eye out for the release of May raw materials and producer price data, and economic growth for April.

Any reaction to these reports could be muted until after the Fed's 2:15 p.m. EDT announcement.

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