Canadian dollar holds ground vs. stronger greenback ahead of Fed decision

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar steadied against its broadly stronger U.S. counterpart on Tuesday as oil prices rose and domestic data showed an increase in wholesale trade, while investors braced for a potential Federal Reserve interest rate hike on Wednesday.

At 4 p.m. ET (2100 GMT), the Canadian dollar was trading nearly unchanged at C$1.3083 to the greenback, or 76.44 U.S. cents. The currency traded in a narrow range of C$1.3053 to C$1.3102.

"I think this market is just waiting for the Fed," said Amo Sahota, director at Klarity FX in San Francisco.

The U.S. dollar (.DXY) rose against a basket of major currencies as investors awaited clues from the Fed on its outlook for the U.S. economy.

Canadian wholesale trade edged up 0.1 percent in January as higher sales in the food and machinery and equipment sectors offset declines in the building material and vehicle industries. Analysts had forecast no change in wholesale trade.

The price of oil, one of Canada's major exports, rose on tension in the Middle East and the possibility of further falls in Venezuelan output.

U.S. crude oil futures settled 2.2 percent higher at $63.40 a barrel.

On Monday, the Canadian dollar hit its weakest intraday level in nearly nine months at C$1.3124, which may have surprised some market participants. A Reuters poll this month had shown that the loonie is forecast to rally over the coming year.

"A few rule books are being rewritten here," Sahota said. "The blame is largely being put on trade, NAFTA negotiations and also a much more neutral Bank of Canada at this point."

U.S. President Donald Trump has threatened to withdraw from the North American Free Trade Agreement with Canada and Mexico if he cannot rework it in favor of the United States.

The Bank of Canada has been worrying that trade policy uncertainty may weigh on the country's economy. Comments last week from Governor Stephen Poloz have reinforced expectations the central bank can take its time raising rates after hiking them three times since last July.

Bank of Canada Senior Deputy Governor Carolyn Wilkins will deliver a speech on Thursday, while domestic inflation data for February is due on Friday.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The 10-year declined 29 Canadian cents to yield 2.205 percent.

(Reporting by Fergal Smith; Editing by Bill Trott and Sandra Maler)