August 25, 2009 / 6:47 PM / 11 years ago

CANADA FX DEBT-BoC warning on C$ strength pressures currency

 * Bank of Canada warns on C$ strength
 * Stumble in oil prices also weighs on C$
 * U.S. consumer confidence rises in August
 By Frank Pingue
 TORONTO, Aug 25 (Reuters) - Canada's dollar unraveled its
early gain and was lower versus the greenback on Tuesday after
a Bank of Canada official warned persistent Canadian dollar
strength could hurt the country's economic recover.
 A 3-percent fall in the price of oil after earlier hitting
a 10-month peak also weighed on the Canadian dollar. Oil prices
often influence the Canadian currency given the nature of the
country's exports. [ID:nSP347579]
 "It does seem like during this last push we ran into some
stops here in dollar/Canada, and with oil being down on the day
that's what put the Canadian dollar under pressure," said J.P.
Blais, vice president, foreign exchange products, at BMO
Capital Markets.
 The turnaround in the Canadian dollar started early in the
session when data showed larger-than-expected improvements in
U.S. housing prices and consumer confidence, which lent new
weight to signs the economy is emerging from the longest and
deepest recession since the 1930s. [ID:nN25205751]
 The domestic currency extended its slide shortly after Bank
of Canada Deputy Governor Timothy Lane sounded a warning about
possible persistent Canadian dollar strength. [ID:nN25220089]
 After Lane's speech, the Canadian dollar fell as low as
C$1.0870 to the U.S. dollar, or 91.99 U.S. cents.
 "I suppose the market is looking at two things. One is no
suggestion that rate hikes are forthcoming sooner than
previously thought, and two, the trepidation the Bank of Canada
is expressing over Canadian dollar strength," said Eric
Lascelles, chief economics and rates strategist at TD
 "I suppose the combination of the two is enough to take a
little bit of wind out of the currency's sails."
 By 2:20 p.m. (1820 GMT), the Canadian currency recovered a
touch to C$1.0842 to the U.S. dollar, or 92.23 U.S. cents, down
from C$1.0770 to the U.S. dollar, or 92.85 U.S. cents, at
Monday's close.
 Earlier, the Canadian dollar had rallied to C$1.0718 to the
U.S. dollar, or 93.30 U.S. cents, its highest level since Aug.
6, as North American equities were poised for a higher open.
 The rally was short-lived as the upbeat U.S. data lent an
immediate boost to the greenback, a departure from earlier this
year when positive news would boost the Canadian dollar by
convincing investors to sell safe-haven currencies like the
U.S. dollar.
 In his speech to economists, the Bank of Canada's Lane said
Canada's recession had most likely ended, with growth expected
to resume in the third quarter. But he also said a persistently
strong Canadian dollar would reduce real growth and delay the
return of inflation to target.
 Canadian bond prices were slightly higher across the curve,
tracking a move in the bigger U.S. Treasury market, as decent
demand there for an auction of two-year notes offset the impact
of the upbeat economic data.
 Bond prices had all been lower across the curve earlier in
the session when the U.S. data sapped demand for more secure
assets like government debt and prompted a move into riskier
assets like stocks.
 The two-year Canadian bond CA2YT=RR was up 4 Canadian
cents at C$99.41 to yield 1.298 percent, while the 10-year bond
CA10YT=RR rose 28 Canadian cents to C$102.88 to yield 3.400
 The 30-year bond CA30YT=RR was up 25 Canadian cents at
C$118.55 to yield 3.900 percent.
 (Reporting by Frank Pingue, Editing by Jeffrey Hodgson)

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