Bank of Canada says currency back in comfort zone

Thu Dec 6, 2007 2:19pm EST
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By Louise Egan

OTTAWA (Reuters) - The Canadian dollar's decline in the past month has brought it to a level the Bank of Canada is comfortable with after the "awful experience" of the currency hitting a modern-day high in November, bank Governor David Dodge said on Thursday.

In unusually explicit comments on foreign exchange rates, Dodge said the central bank feels at ease with a Canadian dollar that is worth less than the U.S. dollar, mentioning the mid-90 U.S. cent level as one that reflects the state of the Canadian economy.

The currency has appreciated since 2002, rising past parity with the U.S. dollar in September, and then hitting a peak of US$1.10 on November 7 before backtracking.

At 1 p.m. (1800 GMT) on Thursday, the Canadian dollar was at 99.15 U.S. cents, valuing a U.S. dollar at C$1.0085.

"If we leave aside the issue of this spike that took us from a buck to a buck ten and back to a buck in the course of several weeks ... The move from -- let's say the mid-60s cents value to the mid-90s cents value -- more or less accords to what was going on from a domestic perspective," Dodge told a Senate banking committee.

"Leaving aside this awful experience we had with the spike's not clear that there was something we should have done," he said.

In its projections in October, the bank assumed the Canadian dollar would trade, on average, at the equivalent of 98 U.S. cents.

It said that if the currency traded persistently above that level for reasons not related to economic factors, it would pose a risk to growth.   Continued...

<p>Bank of Canada Governor David Dodge listens to a question during a news conference in Ottawa October 18, 2007. REUTERS/Chris Wattie</p>