Bank of Canada sounds warning over loonie's rise

The Bank of Canada left a key lending rate unchanged on Thursday, but sounded a warning over the recent rise in the Canadian dollar.

The central bank kept the overnight rate steady at 0.25 per cent — where it said back in April it will remain until the middle of 2010 to help boost the economy.

The bank said the rise in the loonie — which has gone from 79 cents on April 1 to above 90 cents US, with many economists predicting a return to parity with the U.S. dollar — threatens some of the positive factors in the Canadian economy.

"In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly," the bank said.

"If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors," the bank said.