CANADA FX DEBT-C$ plunges to 5-1/2-year low after shock rate cut
(Updates with fresh comment, closing figures, details) * Canadian dollar ends at C$1.2335 vs US$, or 81.07 U.S. cents * Bank of Canada cuts overnight rate to 0.75 percent, slashes outlook * Canadian government bond yields hit record lows By Solarina Ho TORONTO, Jan 21 (Reuters) - The Canadian dollar retreated nearly 2 percent to its weakest level since April 2009 after the Bank of Canada shocked financial markets on Wednesday with an interest rate cut, while bond yields fell to record lows. Canada was the latest central bank to surprise markets, cutting its overnight rate to 0.75 percent from 1 percent as an "insurance" against the impact of cheap crude prices on economic growth and inflation, and the risks of a housing market downturn. The move was the first since September 2010, ending the longest period of unchanged interest rates in Canada since 1950. "To me, that just screams a (central) bank that's looking to tinker. For a bank that has one mandate, which is inflation, this is all about the dollar," said Darcy Briggs, a fixed-income portfolio manager with the Bissett unit of Franklin Templeton Investments. "The USD/CAD already had a very large bullish sentiment behind it. This just added gasoline to the fire. Where it can top out, I'm not sure." The Canadian dollar, which was underperforming all other major currencies, finished at C$1.2335 to the U.S. dollar, or 81.07 U.S. cents, more than two cents weaker than Tuesday's close of C$1.2107, or 82.60 U.S. cents. Earlier in the session, the loonie touched C$1.2420, or 80.52 U.S. cents, its weakest since April 21, 2009. The market had begun pricing in a higher risk of a rate cut but most forecasters believed the next move, while pushed further back, would still eventually be a hike. "There were adjectives that I won't use, but yeah, there was a collective gasp," said Jack Spitz, managing director of foreign exchange at National Bank Financial. "We didn't see this one coming." The Bank of Canada also dramatically slashed its inflation and growth forecasts for the coming year, saying that lower oil prices "will be unambiguously negative for the Canadian economy in 2015 and subsequent years." Canada is the biggest foreign supplier of crude to the U.S. market. The currency's moves have been closely tied to the price of oil , which has plunged more than 50 percent since June on a global supply glut and waning demand. Last week, the Swiss central bank stunned markets when it withdrew a cap on the safe-haven franc against the euro , and investors were awaiting the European Central Bank, which will meet to discuss quantitative easing on Thursday. Canadian government bond prices surged across the maturity curve, with yields touching record lows. The two-year bond jumped 58.5 Canadian cents to yield 0.560 percent and the benchmark 10-year climbed 51 Canadian cents to yield 1.432 percent. (Additional reporting by Alastair Sharp; Editing by Jeffrey Benkoe and James Dalgleish)
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