CANADA FX DEBT-C$ rallies as Bank of Canada alters tone

Tue Jul 21, 2009 10:54am EDT
 
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 * C$ tops 91 U.S. cents, highest level since June 11
 * Bank of Canada leaves rates at 0.25 percent
 * Bond prices mostly lower as sentiment improves
 (Recasts)
 By Frank Pingue
 TORONTO, July 21 (Reuters) - Canada's dollar charged to its
highest level in almost six weeks versus the U.S. currency on
Tuesday morning as the Bank of Canada softened the hard tone it
had taken toward a surge in the currency last month.
 The comments came in a statement in which the central bank
did as expected and kept its conditional pledge to keep its key
interest rate at 0.25 percent. [ID:N21196742]
 The Canadian currency rose to C$1.0965 to the U.S. dollar,
or 91.19 U.S. cents, moments after the bank's  9:00 a.m. (1300
GMT) rate announcement. It was the Canadian dollar's highest
level since June 11.
 "I think the market was expecting some more forceful
language with respect to the currency, which was not received,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "So it opened the door just a bit more in terms of the
acquiescence from the bank with respect to Canadian dollar
appreciation, and the immediate price action tells the story."
 The Bank of Canada said in its statement a higher currency
and industrial restructuring were "significantly moderating the
pace of overall growth". The tone was softer than in June, when
it had said the "unprecedentedly rapid rise" in the currency
could "fully offset" positive factors.
 The statement also included a rosier economic forecast,
including an estimate for the economy to shrink by 2.3 percent
in 2009, not the 3.0 percent thee bank forecast in April; and
to grow by 3.0 percent in 2010 rather than the 2.5 percent it
had forecast earlier.
 By 10:15 a.m. the Canadian unit had backed off slightly to
C$1.1004 to the U.S. dollar, or 90.88 U.S. cents, but remained
up from C$1.1068 to the U.S. dollar, or 90.35 U.S. cents, at
Monday's close.
 The Canadian dollar is now up about 18.7 percent since it
tumbled to a four-year low of C$1.3066 to the U.S. dollar, or
76.53 U.S. cents, in early March.
 Spitz also said the Canadian dollar's rise was aided by a
slide in the U.S. dollar versus a basket of currencies. As U.S.
corporate earnings continued to top expectations, there was
less demand for the safe-haven greenback.
 BONDS MOSTLY LOWER
 Canadian bond prices were pinned lower on the long end of
the curve as the brighter forecast from the Bank of Canada
combined with U.S. corporate earnings optimism to dent demand
for secure government debt.
 The two-year Canada bond was up 4 Canadian cents at
C$100.09 to yield 1.200 percent, while the 10-year bond fell 10
Canadian cents to C$102.50 to yield 3.448 percent.
 The 30-year bond was down 40 Canadian cents at C$116.95 to
yield 3.987 percent. The 30-year U.S. Treasury bond yielded
4.493 percent.
 (Editing by Peter Galloway)