C$ firms a tad as risk aversion eases

By Leah Schnurr

TORONTO (Reuters) - The Canadian dollar firmed slightly on Tuesday as comments from Russia's president that he saw no need to use military force in Crimea for now helped take some of the risk aversion out of the market.

Investors have been on edge in recent sessions as Russia seized Ukraine's Crimea region following last month's ouster of Ukraine's leader.

Vladimir Putin on Tuesday said Russia would only use military force in Ukraine as a last resort, remarks that were seen as being meant to ease fears of war.

"Probably the single biggest driver of currencies in the European session was the news surrounding Ukraine," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

"The Canadian dollar is very sensitive to global risk dynamics, and typically when global risk is elevated or risk aversion is rising, the Canadian dollar weakens."

The Canadian dollar was at C$1.1076 to the greenback, or 90.23 U.S. cents, a touch stronger than Monday's close of C$1.1084, or 90.22 U.S. cents.

Investors were also turning their attention to Wednesday's Bank of Canada meeting. The central bank is expected to hold interest rates at 1 percent, but economists will be watching the accompanying statement for any change in language.

The Bank of Canada took a more dovish shift in policy last year, and left the door open to a cut in interest rates at its most recent meeting in January, saying it was more concerned about the weak inflation environment.

But data since then showed January's inflation rate rose more than expected and analysts say that will likely prompt the central bank to hold the line on Wednesday.

"I would expect Governor Poloz maintains a neutral bias, and that the tone is quite similar to what we heard in January, with the potential that he makes a brief reference to weather-disrupted data and how the Bank is viewing that," said Sutton.

Until then, the currency is likely to stay in a range similar to what was seen in Monday's session between C$1.1039 and C$1.1110, Sutton said.

"Most of the major currencies have really been stuck in ranges over the last couple weeks and the Canadian dollar is no exception to that. We're likely to see that continue."

Canadian government bond prices were lower across the maturity curve, with the two-year off 2.7 Canadian cents to yield 1.012 percent and the benchmark 10-year down 28 Canadian cents to yield 2.433 percent.

(Editing by Phil Berlowitz)