Oct. 22 (Bloomberg) -- Bank of Canada Governor Mark Carney said currency traders should focus more on how the bank will meet its inflation target when thinking about whether policy makers are considering action to stem its gains.

“Markets should take seriously our determination to set policy to achieve the inflation target,” Carney said at a news conference today, when asked if traders are taking seriously the chances of intervention. “Markets sometimes lose their focus, we don’t lose our focus.”

The currency has fallen since the bank used a rate decision two days ago to amplify a warning about the currency, saying it will “more than fully offset” recent signs of growth and threaten to slow inflation further. The bank repeated today that inflation won’t return to target for almost two years, and the currency’s strength could slow prices further.

“Carney is basically issuing a challenge to the market to defy his desire for a certain level for the Canadian dollar,” said Aaron Fennell, a Toronto-based futures and currency broker at Lind-Waldock, a unit of MF Global Canada Co. “Mark Carney talking the U.S. dollar down is nothing more than an excellent buying opportunity.”

The Canadian currency depreciated 0.6 percent to C$1.0489 per U.S. dollar at 2:43 p.m. in Toronto, from C$1.0429 yesterday.

The currency has appreciated 16 percent this year, even after Carney started talking about its rise in June. The appreciation makes the country’s shipments of automobiles, lumber and metals to the U.S. less competitive, and restrains inflation by making imports cheaper.

‘Blunt Smack Down’

Carney also said today the bank still “retains considerable flexibility in the conduct of monetary policy at low interest rates,” and that “intervention is always an option.” He spoke during a news conference in Ottawa today after releasing a quarterly economic forecast.

“That is a pretty blunt smack down of some recent commentary,” said David Watt, senior currency strategist in Toronto at RBC Capital, a unit of Canada’s biggest bank. “It shows that the Bank of Canada isn’t musing about exit strategies; I’m not even sure it’s done with stimulus.”

The central bank raised its assumption for where the Canadian dollar will trade through 2011 to 96 U.S. cents from the 87 U.S. cents it assumed in July. It said recent strength in the currency appears “to have been increasingly driven” by U.S. dollar weakness.

“A stronger-than-assumed Canadian dollar, driven by global portfolio movements out of U.S.-dollar assets, could act as a significant further drag on growth and put additional downward pressure on inflation,” the bank’s Monetary Policy Report said.

“The market is still very sensitive to this type of news,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.

Carney isn’t close to taking action on the currency because inflation isn’t threatening to break away from policy makers’ target, Spitz said. Over longer periods, Carney’s remarks alone won’t hold down the currency against a global decline of the U.S. dollar, he said.

“This isn’t a made-in-Canada story, this is a broad based weakening of the U.S. dollar.”

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: October 22, 2009 14:48 EDT