Loonie hovers against greenback as Bank of Canada prepares for interest rate discussion on Tuesday

The value of the Canadian dollar hovered against its southerly rival on Monday in anticipation of Tuesday's Bank of Canada meeting, published reports indicate.

Reuters reports the performance of the loonie was impacted by concerns for Spain steadily growing in the face of the sovereign debt crisis. The nation's debt yields soared higher than 6 percent on Monday, raising the dander of investors, analysts and other market observers as Spain shows indications of taking on the contagion of the sovereign debt crisis.

Bond yields rising higher than 6 percent on Monday marks the first time that has happened this year, yet the sovereign debt crisis has been ongoing for more than two years. Portugal, Ireland and Greece each have received international bailout aid after bond yields climbed higher than 7 percent. Greece has received two tranches of bailout aid.

"The Canadian dollar is holding in relatively well independently," head of foreign exchange strategy Jeremy Stretch with CIBC World Markets in London told Reuters. "There's a case to be made that the underlying fundamentals remain pretty robust and so on a relative basis Canada looks good against the euro, partly because of the euro woes based around Spain."
But the loonie's response to China, host of the globe's second-largest economy, doubling the trading band of the yuan against the dollar of the U.S., the globe's largest economy, had minimal impact on the loonie. Canada and the U.S. share strong trade and commerce relations.

As policy makers with the Bank of Canada prepare to convene on Tuesday, traders were focusing a scrutiny on the body that is scheduled to discuss interest rates.

"It's a case where markets are mindful of the Bank of Canada and what they may say tomorrow, which should be reasonably supportive for the currency," Stretch told Reuters noted on Monday, also predicting the loonie will advance against the euro and the Australian dollar.

Bloomberg reports a poll indicates policy makers at the Bank of Canada, led by governor Mark Carney, will keep interest rates intact at 1 percent. The governor's decision is scheduled to be publicized at 9 a.m. on Tuesday.

One currency strategist predicted the loonie is slated to perform strongly leading up to and following Carney's decision.

"Absent any imminent Bank of Canada concerns about the strength of the Canadian dollar, investors could buy more Canadian dollars in the aftermath of the meeting," head of European and G-10 currency strategy Valentin Marinov  with Citigroup in London told Bloomberg. "I'd express any constructive Canadian dollar view against the euro or other risk-correlated currencies like the Swedish krona or the Norwegian krone, given their proximity to the euro."

Thus far this year, the monetary unit of Canada has gained 2.3 percent against the world's reserve currency amid conjecture that exports from the natural-resources-rich nation will prove to be beneficial as the globe's largest economy is projected to continue its rapid development and recovery from the Great Recession.

In the U.S., retail sales gained 0.8 percent last month, nearly three-times predictions, according to the U.S. Department of Commerce.

The Canadian Press reports the loonie was feeling the pinch of crude oil futures losing value on Monday. The energy commodity is the top export of Canada and the loonie is sensitive to oil's performance on the markets.

The retail sales data came on the heels of 1 percent gains during the month of February, which one chief economist said will prove to be beneficial to the U.S.

"Overall, these numbers will likely see first quarter growth expectations for the U.S. nudged up," chief economist Avery Shenfeld with CIBC World Markets told The Canadian Press. "We were at 2.3 per cent prior to the release, and today’s data might add a couple of ticks to that estimate."