CANADA FX DEBT-Uncertain rate outlook takes toll on C$

Tue Jun 1, 2010 5:11pm EDT
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* C$ drops to 94.88 U.S. cents

* Bank of Canada first in G7 to hike rates after recession

* Euro zone fears push bond prices up (Updates to close)

By Ka Yan Ng

TORONTO, June 1 (Reuters) - The Canadian dollar fell against the U.S. dollar on Tuesday, hit by global economic fears and the failure of the Bank of Canada to provide a clear signal that more interest rate increases were in the works after it raised its key rate by a quarter point.

The Bank of Canada became on Tuesday the first Group of Seven central bank to raise interest rates since the financial crisis began, pulling up its benchmark overnight rate to 0.50 percent, a move highly anticipated by the market.

But the central bank gave no indication that more hikes were on the way, causing the Canadian dollar to slump. [ID:nN01103957] [ID:nN01264788]

Currencies usually strengthen as interest rates rise as higher rates attract capital flows.

The Canadian dollar CAD=D4 finished at C$1.0540 to the U.S. dollar, or 94.88 U.S. cents, down from Monday's close of C$1.0435 to the U.S. dollar, or 95.83 U.S. cents.   Continued...