CANADA FX DEBT-C$ hits 5-1/2 year low as dealers see more rate cuts
* Canadian dollar at C$1.2404 or 80.62 U.S. cents * Bond prices mixed across the maturity curve By Solarina Ho TORONTO, Jan 22 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, closing at a 5-1/2 year low as investors continued to absorb the implications of the Bank of Canada's stunning interest rate cut a day earlier. The market also reacted to the European Central Bank's launch of 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 was bigger than foreseen and the market was blindsided by the Bank of Canada's cut of its benchmark overnight interest rate to 0.75 percent from 1 percent. The bank called the stimulative move "insurance" against the impact of low crude prices on the economy of the major oil-producing nation. "It seems like central bankers worldwide are going with the shock and awe approach of monetary policy," said TD Securities macro strategist Mazen Issa, adding that the Bank of Canada's move was a bit premature. "I think it's a bit of a dangerous precedent we're setting here that the Bank of Canada is now setting monetary policy to some extent on the price of oil, which is a variable they have very little control over." The Canadian dollar closed at C$1.2404 to the greenback, or 80.62 U.S. cents, softer than Wednesday's finish of C$1.2335, or 81.07 U.S. cents. It was its weakest finish since April 2009. "The bias is basically buy U.S. dollar and short everything else," said Issa, who said C$1.30 to the greenback was well within reach this year. Forecasters have questioned the effectiveness of a 25 basis point drop and most primary dealers expect another rate cut before the end of April, a new Reuters poll showed. The rate move was based on oil prices at $60 a barrel, so the longer prices stay below that level, the more expectations of another rate cut will grow, said Greg Moore, senior currency strategist at RBC Capital Markets. The central bank said the weak oil prices were "unambiguously negative" for Canada's economy. Prices have plunged since last June as global output continued to climb, while demand softened. 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 mixed across the maturity curve, but the two-year bond was up 1 Canadian cent to yield 0.551 percent, and the benchmark 10-year bond, was 4 Canadian cents higher to yield 1.428 percent. (Reporting by Solarina Ho; Editing by Peter Galloway)
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