October 24, 2009 / 1:22 AM / 8 years ago

Canadian dollar falls on weak oil, BoC warnings

TORONTO (Reuters) - The Canadian dollar sank further against the greenback on Friday as warnings from the Bank of Canada that the currency's strength was a risk to economic growth weighed on investor sentiment.

On Thursday, Governor Mark Carney said in a news conference that intervention in currency markets was an option but also stressed the bank's main concern was controlling inflation.

That followed comments earlier in the week by the central bank that the surging currency was undermining Canada's economic recovery, which killed thoughts of an early interest rate hike and raised some concerns the bank might signal it would intervene in foreign exchange markets.

The comments sent Canada's dollar to a low of C$1.0546 to the U.S. dollar on Friday, or 94.82 U.S. cents. It recovered some of the losses to finish at C$1.0519 to the U.S. dollar, or 95.07 U.S. cents, down from C$1.0478 to the U.S. dollar, or 95.44 U.S. cents, at Thursday's close.

The Canadian dollar was down 1.3 percent for the week.

"The real driver was certainly the Bank of Canada," said Camilla Sutton, currency strategist at Scotia Capital.

Also tugging the currency lower was weakness in the price of oil, a key Canadian export, which fell to around $80 a barrel, while gold prices were also weaker.

"Commodity currencies are generally a little bit weaker and that's driven off equities being weaker," Sutton said.

Stock market on both side of the border sank on Friday. Toronto stocks were dragged lower by weaker oil prices, profit-taking and a poor outlook from fertilizer producer Agrium Inc. In the United States, the Dow slipped below the 10,000 mark, pressured by weak results from industrial companies.

BONDS WEAKER

Domestic bond prices, with no Canadian data to influence a move, were pinned lower across the curve alongside the bigger U.S. Treasury market, said Sheldon Dong, fixed income analyst, at TD Waterhouse Private Investment.

U.S. Treasury debt prices eased on Friday as investors maneuvered to cut prices ahead of next week's record-large wave of government notes supply.

"There's going to be focus on whether there's enough buying support for the record amounts of debt they're going to issue," said Dong.

The two-year bond fell 4 Canadian cents to C$99.45 to yield 1.518 percent, while the 10-year bond fell 35 Canadian cents to C$102.00 to yield 3.502 percent.

Canadian bonds mostly outperformed comparable U.S. issues. The Canadian 2-year yield was about 50 basis points above its U.S. counterpart, from 55 basis points on Thursday.

Reporting by Jennifer Kwan; editing by Rob Wilson

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