CANADA FX DEBT-C$ slides as market digests surprise BoC rate cut

Thu Jan 22, 2015 10:16am EST
 
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* Canadian dollar at C$1.2370 or 80.84 U.S. cents
    * Bond prices mostly higher across the maturity curve

    By Solarina Ho
    TORONTO, Jan 22 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, remaining near 5-1/2
year lows, as investors digested a stunning rate cut by the Bank
of Canada a day earlier.
    The markets were also following the latest developments at
the European Central Bank, which launched a government
bond-buying program on Thursday that will pump hundreds of
billions of euros of new money into the region's sagging
economy. 
    The ECB's move comes a day after the Bank of Canada
blind-sided markets, cutting its benchmark overnight interest
rate to 0.75 percent from 1 percent as "insurance" against the
impact of low crude prices on the economy of the major
oil-producing nation. 
    "Everyone still trying to adjust expectations," said Greg
Moore, senior currency strategist at RBC Capital Markets, who
said the move added to a bearish view on the Canadian dollar.
    "This connects lower oil prices even more strongly to
monetary policy expectations, which had been the second biggest 
driver of the exchange rate."
    At 9:35 a.m. (1435 GMT), the Canadian dollar, which
was underperforming against most major currencies, was at
C$1.2370 to the greenback, or 80.84 U.S. cents, softer than
Wednesday's close of C$1.2335, or 81.07 U.S. cents.
    Over the next couple of weeks, market participants will be
closely watching crude prices. The Bank of Canada's pre-emptive
move was based on oil prices at $60 a barrel, so the longer
prices stay below that level, the more dovish expectations will
get for another rate cut, Moore said.
    The central bank said the weak prices were "unambiguously
negative" for Canada's economy. Prices have plunged since last
June as global output continued to climb, while demand softened.
U.S. crude stood at $47.90 a barrel on Thursday morning.
    Canadian inflation data for December and retail sales
figures for November are due on Friday, but barring a huge
surprise, their impact has been mostly priced in by the market
following this week's Bank of Canada forecasts.
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year up 4.5 Canadian
cents to yield 0.534 percent and the benchmark 10-year
 up 25 Canadian cents to yield 1.406 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)