TORONTO, Aug 6 - The Canadian dollar edged higher against the U.S. dollar on Wednesday morning, aided by positive sentiment stemming from Australia's decision to stand pat on interest rates. At 8:30 a.m. (1230 GMT), the Canadian dollar was at C$1.4019 to the U.S. dollar, or 71.33 U.S. cents, up slightly from C$1.4030 to the U.S. dollar, or 71.27 U.S. cents, at Tuesday's close. But the Canadian dollar fell from highs hit in overnight trading when it rose as high as C$1.3968. The Canadian unit is one of the dollar-bloc currencies, which pairs it with the Australian and New Zealand dollars. As commodity-linked currencies, sentiment affecting one tends to spill over to the others. The Reserve Bank of Australia opted to keep official interest rates steady, preserving the Australian dollar's large yield premium over the United States. "That may be helping the Canadian dollar a little bit, though we haven't moved a whole lot from yesterday," said Scott Kinnear, senior analyst at MMS International. Canada similarly enjoys a large interest rate premium over U.S. rates, a factor that has helped the domestic currency rise some 15 percent this year. But it has pulled back recently following the Bank of Canada's interest-rate cut last month, which narrowed the rate gap. There was little reaction to news on Wednesday morning that Canadian foreign reserve holdings fell by US$934 million to US$35.77 billion in July. The Canadian currency is largely expected to be range-bound heading into Friday's domestic employment figures. "I think we're going to bounce around where we are right now until we get past the employment report this Friday," said Kinnear. Analysts surveyed by expect, on average, the July jobless rate to be unchanged at 7.7 percent with 5,000 jobs gained, compared with a gain of 48,800 jobs in June. Other data to watch this week include Thursday's Ivey Purchasing Managers index for July.
BONDS SLIP
Canadian bonds slipped on Wednesday as the market awaited fresh supply later in the form of a C$2.4 billion Canadian 10-year-bond auction. The U.S. Treasury also offers some supply news. It will sell $18 billion in five-year notes on Wednesday, the second leg of its quarterly refunding. The first auction, the sale of $24 billion in three-year notes, proved mediocre and was met with weak demand. Canada's two-year bond fell 2 Canadian cents to C$100.77 to yield 3.059 percent, while the 10-year bond lost 31 Canadian cents to C$102.05 to yield 4.959 percent. The yield spread between the two-year and 10-year bond moved to 189.7 basis points from 186.8 at the previous close. The 30-year bond, due 2029, shed 30 Canadian cents to C$103.95 to yield 5.462 percent. In the United States, the 30-year treasury yielded 5.359 percent. The three-month when-issued T-bill yielded 2.86 percent, unchanged from the previous close. ((Reporting by Ka Yan Ng; editing by Peter Galloway;