Flaherty talks of "steps" to slow loonie rise

Tue Aug 4, 2009 4:29pm EDT
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By Ka Yan Ng

PICKERING, Ontario (Reuters) - The finance minister raised the possibility on Tuesday of policy makers intervening in the currency market if the Canadian dollar's sharp rise puts the fragile economic recovery at risk.

Immediately after Flaherty's comments, the Canadian dollar fell against the U.S. dollar after hitting a 10-month high earlier in the day.

Currency matters in Canada are strictly the domain of the Bank of Canada, not the government, and so far few market players are betting the bank will step in to brake the appreciation.

"I won't substitute my views for those of the governor of the Bank (of Canada) ... We are concerned with any rapid changes in the valuation of the Canadian currency vis a vis the U.S. currency ... We watch that," Flaherty told reporters.

"There are some steps that could be taken to dampen that. There are, from time to time, indications of some speculation in the Canadian currency that is not justified in market terms," he said.

The Canadian dollar rose as high as C$1.0632 to the U.S. dollar, or 94.06 U.S. cents, on Tuesday, up 1.3 percent from Friday, before paring gains. Monday was a market holiday in Canada.

After Flaherty spoke, the currency fell to C$1.0756, or 92.97 U.S. cents. It later rebounded to close at C$1.0745 to the U.S. dollar, or 93.07 U.S. cents, up from Friday's close of C$1.0775 to the U.S. dollar, or 92.81 U.S. cents.

Matthew Strauss, senior currency strategist at RBC Capital Markets, said the reversal in the currency's movement was caused entirely by Flaherty's comments rather than the more frequent reason of a change in U.S. risk sentiment.   Continued...