CANADA FX DEBT-C$ hits 5-1/2 year lows as another rate cut eyed

Mon Jan 26, 2015 5:00pm EST
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* Canadian dollar at C$1.2464 or 80.23 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Jan 26 (Reuters) - The Canadian dollar continued to
test new 5-1/2 lows against its U.S. counterpart on Monday,
extending last week's hefty losses as investors anticipated
another interest rate cut after the Bank of Canada blindsided
the market with a rate cut last week. 
    The Bank of Canada delivered the wholly unexpected 25 basis
point cut last Wednesday, ending the longest period of unchanged
rates in Canada since 1950. The central bank said the move was
an "insurance" against the impact of cheap crude on the economy.
Canada is a major oil producer. 
    "The market ... is now looking forward to the next Bank of
Canada decision and it's looking more and more likely another
rate cut is coming," said Adam Button, currency analyst at
ForexLive in Montreal.
    Some strategists have expressed skepticism that a 25 basis
point cut would have much impact, and markets have begun pricing
in about a 33 percent chance of a rate cut in March.
    Many primary dealers, the institutions that deal directly
with the Bank of Canada, are expecting a cut sometime this
spring, according to a Reuters poll conducted last week.
    The Canadian dollar ended at C$1.2464 to the
greenback, or 80.23 U.S. cents, weaker than Friday's close of
C$1.2424, or 80.49 U.S. cents, and its weakest finish since
April 2009. Last week, the loonie tumbled 3.7 percent.
    U.S. crude prices hit its lowest level in nearly six years
as traders brushed off comments by the OPEC producer group that
prices may have finally found a floor, putting additional
pressure on the loonie. 
    Because Canada is a major oil exporter, the Canadian dollar
has taken a beating alongside crude prices, which have tumbled
since June on dwindling demand and a glut of supply.
    Button said there was very little to stop the Canadian
dollar from weakening until it hits around C$1.30.
    "Betting against the Canadian dollar isn't yet a crowded
trade despite the dramatic fall of the loonie this year, and
that gives it plenty of room to run from here," he said.
    One of this week's main economic events will likely be the
U.S. Federal Reserve's statement after it meets on Tuesday and
Wednesday. The Fed is widely expected to raise rates in mid
    Canadian government bond prices were mixed across the
maturity curve, with longer-term securities falling. The
two-year bond rose 3 Canadian cents to yield 0.521
percent and the benchmark 10-year bond fell 23
Canadian cents to yield 1.468 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)