* Bond prices lower after three-session surge
* Carney, Flaherty soothe on world economy, ready to act
* Poll: Next move in BoC monetary policy path is up (Adds details)
By Ka Yan Ng
TORONTO, Aug 19 (Reuters) - Canada’s dollar ended nearly unchanged against the U.S. currency on Friday, reassured by top Canadian policymakers that they are ready to act if the world economy deteriorates dramatically.
It capped a relatively restrained week for the resource-linked currency, which saw some of its gains erased by weakness on equity markets.
“Canada-U.S. has been very much sort of driven by risk-on, risk-off; it’s one of the most correlated currency pairs with respect to global equity news,” said Mark Chandler, head of Canada fixed income and currency strategy at RBC Capital Markets.
The Canadian dollar CAD=D4 finished at C$0.9886 to the U.S. dollar, or $1.0115, virtually unchanged from Thursday’s session close at C$0.9884 to the U.S. dollar, or $1.0117. It was up 0.2 percent on the week.
In testimony before a parliamentary committee on Friday, Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty both highlighted the risks posed by Europe’s stubborn debt crisis and the slow U.S. recovery from recession.
But neither forecast a recession in either area, although Carney admitted that Canada’s economy might contract in the second quarter. [ID:nN1E77I0KX] [ID:nN1E77I0L1][ID:nN1E77I0QJ]
“There wasn’t anything too bombastic out of Governor Carney to convince the dollar to move in any sustained manner as a result of his testimony,” said David Tulk, chief Canada macro strategist at TD Securities.
The appearance by Carney and Flaherty in Ottawa marked the key event of the session for domestic markets, as inflation data for July, released earlier by Statistics Canada, suggested no inflation pressures, leaving the Bank of Canada some breathing room to stand pat on rates for now. [ID:nN1E77I02W] [ID:nSCLJJE70X]
A rate hike remains the most likely eventual course of action from the Bank of Canada and two primary dealers say it could come this December, according to a Reuters survey. [CA/POLL]
All ten of Canada’s 12 primary dealers available to answer Reuters questions expect the bank to hold its overnight rate at 1 percent until at least December. Two of the dealers were not immediately available to update their forecasts.
Government bond prices moved lower, giving back a fraction of their rally of the past three sessions. The two-year bond CA2YT=RR dipped 4 Canadian cent to yield 0.879 percent, while the 10-year bond CA10YT=RR fell 3 Canadian cents to yield 2.304 percent. Canadian bond mostly underperformed their U.S. counterparts. (Additional reporting by Claire Sibonney; editing by Rob Wilson)