March 6, 2013 / 6:22 PM / 4 years ago

Canadian dollar near 8-month lows as Bank of Canada softens stance

TORONTO (Reuters) - The Canadian dollar weakened against the U.S. dollar to trade near 8-month lows on Wednesday after the Bank of Canada held interest rates steady and softened its stance on the need for tightening monetary policy.

The central bank said it will likely hold its benchmark rate steady for "a period of time," a tweak from the "less imminent" language used in January.

The central bank held its overnight lending target unchanged - as widely expected - at 1.0 percent, where it has been since September 2010.

"They haven't completely disbanded the very mild tightening bias, but they have found a way to split the hair a little bit further," said Doug Porter, chief economist at BMO Capital Markets.

"It probably is one further slip on the dial lower than what we would've expected and I think the market expected as well."

At 12:15 p.m. (1715 GMT), the Canadian dollar was trading at C$1.0322 versus the U.S. dollar, or 96.87 U.S. cents, weaker than C$1.0288 just before the central bank announcement and its North American finish on Tuesday at C$1.0280.

Shortly after the decision, the currency softened to C$1.0337, near the 2013 low of C$1.0343 it hit on Friday, which was the weakest the currency had been since June 28.

"It's contributing a bit of weakness but I think it will be fairly limited - this isn't a dramatic shift," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

In other data, the pace of purchasing activity in Canada slowed in February for the second straight month, according to the Ivey Purchasing Managers Index.

The seasonally adjusted index fell to 51.1 in February from 58.9 in January. Analysts polled by Reuters had expected an adjusted reading of 57.5.

The figures took a significant back seat to the Bank of Canada announcement. But they did reinforce a concern about slowing growth that has prompted some analysts to turn bearish on the near-term prospects for the currency.

Still, a Reuters poll on Wednesday showed forecasters expect the Canadian dollar will recover some of its early 2013 losses and trade at equal value against its U.S. counterpart by the end of this year. <CAD/POLL>

Canada's performance was mixed against a basket of other major currencies, outperforming the Japanese yen, but underperforming its commodities-linked sister currency, the Australian dollar.

Bond prices were mixed. The two-year bond was up 4 Canadian cents and yielding 0.934 percent, while the benchmark 10-year bond was off 11 Canadian cents and yielding 1.829 percent.

Additional reporting by Alastair Sharp and Andrea Hopkins; Editing by Jeffrey Hodgson and Bernadette Baum

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