CANADA FX DEBT-C$ eases after BoC statement, bonds fall

Thu Jun 4, 2009 10:28am EDT
 
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* C$ eases after Bank of Canada statements

* Bank of Canada holds rates steady, but warns on C$

* Makes no mention of unconventional monetary easing

* Bonds fall, eyes equities and supply (Adds details)

TORONTO, June 4 (Reuters) - The Canadian dollar eased against the U.S. currency on Thursday morning after the Bank of Canada kept rates unchanged, as expected, but warned markets about the economic threat posed by the recent sharp appreciation of the Canadian dollar.

The currency fell as low as C$1.1100 to the U.S. dollar, or 90.09 U.S. cents, as market players digested the unusually strong comments from the central bank about the currency, which surged 9.3 percent in May alone, its biggest monthly gain since at least October 1950.

"I think it could pose some downsides to (the Canadian dollar), because it is signaling that there is a bit of demand destruction kind of argument here because if (the Canadian dollar) shoots up too aggressively here it will short circuit on the fundamentals for the Canadian economy," said Derek Holt, economist at Scotia Capital.

Canada's export-oriented economy is already in a deep recession and a stronger currency could hurt demand for exports and stall recovery. Market players had been looking for clarity on how the central bank views the recent ascent of the Canadian dollar.

At 9:55 a.m. (1455 GMT), the Canadian currency was at C$1.1096 to the U.S. dollar, or 90.12 U.S. cents, down from C$1.1084 to the U.S. dollar, or 90.22 U.S. cents, at Wednesday's session close.   Continued...