Loonie falls from 3-yr high on BOC rate outlook

Tue Mar 1, 2011 10:18am EST
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By Ka Yan Ng

TORONTO (Reuters) - The Canadian dollar retreated from a three-year high against the U.S. currency on Tuesday morning and short-dated bond prices perked up after the Bank of Canada left interest rates unchanged and gave no signal it plans to raise them soon.

The Canadian dollar fell as low as C$0.9735 to the U.S. dollar, or $1.0272, after the bank's announcement from C$0.9714, or $1.0294, just before, a level that matched Monday's North American close.

Early in the day it rose as high as C$0.9684 to the U.S. dollar, or $1.0326, its highest level since November 2007.

By 9:40 a.m. (1440 GMT), it was at C$0.9725 to the U.S. dollar, or $1.0283.

The interest rate-sensitive two-year bond turned positive, edging up 4 Canadian cents to yield 1.824 percent.

"The dollar is certainly weakening. I think you're seeing a little bit of giveback in some of the (yield curve) short end but mostly it's a Canadian dollar story at this point," said David Tulk, chief Canada macro strategist at TD Securities.

The Bank of Canada maintained its benchmark rate at 1 percent. It also repeated the language that it used in its January rate announcement, saying that while considerable monetary stimulus remains in place, "any further reduction in monetary policy stimulus would need to be carefully considered.

"They slightly upgraded their outlook for the Canadian economy, acknowledging that the recovery has been proceeding slightly faster than expected," said Paul Ferley, assistant chief economist at Royal Bank of Canada.   Continued...