July 21, 2009 / 6:39 PM / in 11 years

CANADA FX DEBT-C$ turns lower as Bernanke comments weigh

 * Fed comments knock C$ from near six-week high
 * C$ unravels gains made after BoC rate decision
 * Bond prices mostly higher after early selloff
 By Frank Pingue
 TORONTO, July 21 (Reuters) - Canada's dollar fell from its
highest level in about six weeks and turned lower versus the
greenback on Tuesday as a cautious assessment on the U.S.
economy forced it to retreat from gains made after a more
optimistic statement from the Bank of Canada.
 The Canadian currency's abrupt turnaround came as U.S.
Federal Reserve Chairman Ben Bernanke gave a cautious
assessment of the U.S. economy during testimony before the
House Financial Services Committee. [ID:nWEQ001226]
 The comments offered a boost to the U.S. dollar due to its
safe-haven appeal and forced the Canadian dollar to relinquish
the gains it made after the Bank of Canada softened the hard
tone it had taken toward a surge in the currency last month.
 "I would clearly give the credit to Mr. Bernanke," Steve
Butler, director of foreign exchange trading at Scotia Capital
said when asked to explain the slide in the Canadian dollar.
 "Just the whole idea that (U.S.) rates will stay low for a
long period of time I guess diffuses some of the hope that
things were coming along faster than we were expecting."
 At 2:10 p.m. (1810 GMT), the Canadian unit was at C$1.1083
to the U.S. dollar, or 90.23 U.S. cents, down from C$1.1068 to
the U.S. dollar, or 90.35 U.S. cents, at Monday's close.
 Earlier in the session the Canadian currency shot as high
as C$1.0965 to the U.S. dollar, or 91.19 U.S. cents, its
highest level since June 11.
 The early rally came after the Bank of Canada did as was
expected and kept its conditional pledge to keep its key
interest rate at 0.25 percent. [ID:N21196742]
 The central bank said in its statement that a stronger
currency and industrial restructuring were "significantly
moderating the pace of overall growth". The tone was softer
than in June, when the bank said the "unprecedentedly rapid
rise" in the currency could "fully offset" positive factors.
 The bank's statement also included a rosier economic
outlook, including a forecast that the economy will shrink by
2.3 percent in 2009, not the 3.0 percent the bank forecast in
April; and will grow by 3.0 percent in 2010 rather than the 2.5
percent it had forecast earlier.
 "I think the market was expecting some more forceful
language with respect to the currency, which was not received,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "So it opened the door just a bit more in terms of the
acquiescence from the bank with respect to Canadian dollar
appreciation, and the immediate price action tells the story."
 The Canadian dollar is up about 18 percent since it tumbled
to a four-year low of C$1.3066 to the U.S. dollar, or 76.53
U.S. cents, in early March.
 Canadian bond prices reversed early losses to turn higher
across the short end of the curve as Bernanke's comments gave a
bid to secure government debt.
 The bounce in Canadian bonds came alongside a rally in the
bigger U.S. Treasury market after Bernanke cautioned about
economic weakness.
 The two-year Canada bond was up 6 Canadian cents at
C$100.11 to yield 1.189 percent, while the 10-year bond rose 25
Canadian cents to C$102.85 to yield 3.407 percent.
 The 30-year bond moved off its earlier low but was still
down 15 Canadian cents at C$117.20 to yield 3.973 percent. The
30-year U.S. Treasury bond yielded 4.398 percent.
 (Editing by Peter Galloway)

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