CANADA FX DEBT-C$ starts 2015 at 5-1/2-year low

Fri Jan 2, 2015 9:58am EST
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* Canadian dollar at C$1.1700 or 85.47 U.S. cents
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    OTTAWA, Jan 2 (Reuters) - The Canadian dollar fell to its
lowest level against the greenback in 5-1/2 years on Friday,
kicking 2015 off on a weak note as it was hit by a rally in the
U.S. dollar and another drop in oil prices.
    Traders returned to their desks to take the loonie
resoundingly lower, after it drifted higher in light holiday
volume over the last few sessions. Investors bet that many of
the themes that battered the currency in 2014 were still intact,
including a Federal Reserve that is expected to raise interest
rates this year.
    "The Canadian dollar benefited from people having that
Christmas holiday effect and not really worrying about what will
happen in the new year," said Don Mikolich, executive director
of foreign exchange sales at CIBC World Markets in Toronto. 
    "Overall, people will get refocused as they get into January
now, it'll be about looking at the Fed meetings and what oil
prices are doing and the (economic) data."
    Anticipation that the European Central Bank will take more
aggressive steps on monetary policy later this month added to
the favor for the U.S. dollar and highlighted the divergence
between monetary policy at the Fed and much of the rest of the
    ECB President Mario Draghi said the risk of the central bank
not fulfilling its mandate of preserving price stability was
higher now than half a year ago, suggesting it was ready to act
early this year. 
    The Canadian dollar was at C$1.1700 to the
greenback, or 85.47 U.S. cents, weaker than Wednesday's official
close from the Bank of Canada of C$1.1601, or 86.20 U.S. cents.
Markets were closed on Thursday for the New Years holiday.
    The loonie was sitting near its session lows, putting it at
its lowest level since July 2009.
    A decline in the price of oil also continued to weigh on the
loonie, with crude down 25 cents at $53.02 a barrel.
Whether oil will see another significant plunge is a major risk
for forecasts for the loonie this year, as oil is a major export
for Canada.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year down half a
Canadian cents to yield 1.013 percent, while the benchmark
10-year was up 4 Canadian cents to yield 1.786

 (Editing by Nick Zieminski)