June 4, 2009 / 2:32 PM / 8 years ago

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

* 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.

But it was still firmer than the session low at C$1.1161 to the U.S. dollar, or 89.60 U.S. cents, hit about an hour before the Bank of Canada’s statements.

The central bank made no mention of unconventional monetary easing, such as printing money to buy securities, signaling it maintains the view that further stimulus is not required any time soon. [ID:nBAC000304]

BONDS FALL

Canadian bond prices fell across the curve, but losses were modest as the Bank of Canada’s communique was mostly in line with expectations.

The benchmark two-year government bond was off 1 Canadian cent at C$100.17 to yield 1.163 percent, while the 10-year bond fell 40 Canadian cents to C$103.10 to yield 3.381 percent.

The 30-year bond lost 40 Canadian cents to C$116.75 to yield 4.000 percent. The comparable U.S. Treasury issue yielded 4.507 percent.

“In the short-dated instruments you have that commitment, once again reaffirmed, that rates will remain low for a long period of time,” said Mark Chandler, fixed income strategist, RBC Capital Markets.

“The question perhaps was (quantitative easing) or the Canadian dollar, and what they said today was no different really than expectations heading in,” he added.

Lingering concerns about a spike in government debt issue also weighed on the bond market [ID:nL4611253], as did a positive start on North American equity markets. [ID:nTOR004621] [ID:nN04486840] (Reporting by Ka Yan Ng, Scott Anderson, Jennifer Kwan; editing by Peter Galloway)

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