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TORONTO (Reuters) - The Canadian dollar fell 0.6 percent against the U.S. dollar on Tuesday after the Bank of Canada did as expected and slashed its key overnight rate by 50 basis points and signaled it may ease more later in the year.
Domestic bond prices were mixed after the announcement.
At 10:22 a.m. EDT, the Canadian dollar was at C$1.0116 to the U.S. dollar, or 98.85 U.S. cents, down from C$1.0056 to the U.S. dollar, or 99.44 U.S. cents, shortly before the central bank's announcement.
On Monday, the currency closed at 1.0060 to the U.S. dollar, or 99.40 U.S. cents.
After back-to-back 50 basis point cuts, the Bank of Canada's key overnight rate is now at 3 percent.
"The Bank of Canada has moved aggressively to keep tighter credit conditions and the U.S. recession from morphing into a Canadian recession," said Doug Porter, deputy chief economist at BMO Capital Markets in a note to clients.
The central bank cited "a deeper and more protracted slowdown in the U.S. economy" as the main threat to the Canadian economy, and as the reason it may have to ease rates more in the future.
The United States takes over three-quarters of Canadian exports, and exports make up around 40 percent of the Canadian economy.
But in a sign that the interest rate easing campaign may be nearing its end, the bank dropped a previous reference that said it would have to lower rates in the "near term."
The Bank of Canada releases its Monetary Policy Report on Thursday, which should give more details on the bank's assessment of the economy.
Canadian bond prices were mixed with the long end extending its losses after the interest rate announcement.
The overnight Canadian LIBOR rate was at 3.1717 percent, down from 3.4891 percent on Monday.
Monday's CORRA rate was 3.4724 percent, down from 4.891 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 1 Canadian cent to C$101.86 to yield 2.832 percent. The 10-year bond slipped 18 Canadian cents to C$102.39 to yield 3.688 percent.
The yield spread between the two- and 10-year bonds was 85.6 basis points, up from 82.9 basis points at the previous close.
The 30-year bond slid 58 Canadian cents at C$114.22 to yield 4.153 percent. In the United States, the 30-year Treasury yielded 4.476 percent.
The three-month when-issued T-bill yielded 2.53 percent, down from 2.55 percent at the previous close.
Editing by Renato Andrade