September 23, 2009 / 8:57 PM / in 11 years

CANADA FX DEBT-Oil drags C$ off gains made on Fed statement

 * C$ ends lower at 93.01 U.S. cents
 * Falling oil the main driver after brief Fed boost
 * Fed says U.S. economy in recovery after downturn
 * Bonds turn higher as stocks suffer late-session slump
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Sept 23 (Reuters) - Canada's currency finished
lower against the U.S. dollar on Wednesday, pulled down by
falling energy prices, despite getting a brief boost after the
Federal Reserve said U.S. economic recovery is under way.
 The U.S. central bank's statement that the economy is in
recovery [ID:nN23390829] prompted a swift slide in the
greenback against a number of currencies, including the
Canadian dollar, as it spurred investor confidence in holding
riskier currencies.
 But it wasn't long before the oil price reasserted its
strong influence on the Canadian dollar's direction. Oil fell
more than $3 to below $69 a barrel on U.S. storage data, and
carried Toronto's main stock market index lower along with it.
The Canadian dollar often tracks the direction of equity and
resource prices as a reflection of risk appetite.
 The Canadian currency finished at C$1.0751 to the U.S.
dollar, or 93.01 U.S. cents, down from C$1.0691 to the U.S.
dollar, or 93.54 U.S. cents, at Tuesday's close. It nearly
matched its overnight high of 93.78 U.S. cents after the Fed
 "It seems to have been short-lived with the Canadian dollar
retracing those initial gains," said Paul Ferley, assistant
chief economist at Royal Bank of Canada. "We're seeing a pretty
good drop in terms of oil prices and commodity prices and that
seems to be grabbing the lion's share of attention right now."
 Early in the session, Canada's currency turned lower
against the U.S. dollar after a Bank of Canada official
repeated the central bank's warning that the strong Canadian
dollar is a risk to growth.  [ID:nN23387254]
 Separately, Bank of Canada Governor Mark Carney said late
on Tuesday that Canada's economy has started the slow climb to
recovery but only because of the emergency measures taken by
the government and central bank, with business activity still
lagging. [ID:nN22355648]
 After the Fed, the focus turns to a meeting of the Group of
20 nations on Thursday in Pittsburgh. Among major issues
expected to be discussed will be the need to examine strategies
for withdrawing economic stimulus measures. [ID:nLH78576]
 Canadian bond prices turned higher late in the session as
stock markets dropped sharply in the closing moments of
trading. Bonds had been trading near flat after the Fed
reiterated its promise to keep interest rates low for an
extended period. [ID:nN23409345]
 The two-year bond CA2YT=RR gained 2 Canadian cents to
C$99.48 to yield 1.273 percent, while the 10-year bond
CA10YT=RR rose 7 Canadian cents to C$102.75 to yield 3.413
percent. The 30-year bond CA30YT=RR gained 35 Canadian cents
to C$118.10 to yield 3.922 percent.
 Canadian bonds outperformed their U.S. counterparts on the
front and back ends of the curve, but the five- and 10-year
maturities underperformed.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)

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