CANADA FX DEBT-C$ hits 5-1/2 year lows as another rate cut eyed
* 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 2015. 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)
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