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