September 15, 2012 / 8:08 PM / 5 years ago

Flaherty says currency intervention would have only limited affect

TORONTO (Reuters) - Intervening in foreign exchange markets to weaken Canada's soaring dollar would have only limited impact because currencies typically reflect a country's fundamentals, Canadian Finance Minister Jim Flaherty said in a newspaper interview published on Saturday.

Flaherty told The Globe and Mail he had an agreement with the Bank of Canada about what they could do if both the government and central bank agreed to intervene in markets. But he said there were limits to that approach.

"The reality is, whatever we did would have a short-term, moderate influence. These are temporary measures," Flaherty was quoted as saying.

"They don't in the long term affect the value of a nation's currency, which to a large extent depends on the fundamentals of that nation's economy. Our fundamentals are relatively strong."

Canada's dollar hit its highest level in more than a year versus the U.S. dollar on Friday, a day after the Federal Reserve finally pulled the trigger on a bold new plan to stimulate the U.S. economy.

The currency's rise has put further pressure on Canadian exporters already struggling with soft U.S. demand and slowing global growth.

But Canadian policymakers have shown little inclination to wade into currency markets.

Flaherty told reporters in Oshawa, Ontario, on Friday that while volatility in the Canadian dollar was worrying, the currency's strength partly reflected faith in the country's economic fundamentals.

The Bank of Canada has not intervened in foreign exchange markets to affect movements in the Canadian dollar since September 1998.

The Globe reported that Flaherty said the Conservative government could provide fresh fiscal stimulus if needed, but would prefer to remain on track to balance the budget.

Flaherty said previously the government could inject new stimulus in response to an economic shock from abroad, but would focus on cutting the budget deficit for now.

Reporting by Jeffrey Hodgson; Editing by Peter Cooney

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