CANADA FX DEBT-C$ sinks to weakest in nearly 6 years after GDP data

Fri Jan 30, 2015 10:24am EST
 
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* Canadian dollar at C$1.2757 or 78.39 U.S. cents
    * C$ hits C$1.28, or 78.13 U.S. cents, lowest since 2009
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Jan 30 (Reuters) - The Canadian dollar sank to its
weakest level against the U.S. dollar in nearly six years on
Friday after data showed the Canadian economy unexpectedly
shrank in November, which spurred markets to put a bigger bet on
another central bank rate cut.
    The Canadian dollar tumbled nearly 2 cents at one point
following the data, which showed the economy contracted by 0.2
percent in November on weakness in manufacturing, mining, and
oil and gas extraction. On average, economists had forecast flat
growth. 
    Markets, hit by the Bank of Canada's bombshell 25 basis
point interest rate cut last week, are now pricing in a 76
percent chance of another rate cut in March, when the central
bank issues its next monetary policy decision.
    A slew of U.S. economic data on Friday also included numbers
that indicated economic growth slowed sharply in the fourth
quarter due to weak business spending and a wider trade deficit,
which offset strong consumer spending. 
    "The CAD is sinking like a stone. And that's probably just
the beginning of it ... currency's falling far, very fast," said
Mazen Issa, macro strategist at TD Securities.
    "Certainly U.S. GDP disappointment does not help, but given
the weakness in the Canadian dollar is broadly based on the
crosses as well, there's definitely more concern that this may
be the beginning of more weakness to come in Canadian growth."
    At 9:49 a.m. (1449 GMT), the Canadian dollar was at
C$1.2757 to the greenback, or 78.39 U.S. cents, sharply weaker
than it was just before the GDP data was released, and down from
Thursday's finish of C$1.2611, or 79.30. It fell as low as
C$1.28, or 78.13 U.S. cents, its weakest level since March 13,
2009.
    Issa said TD has revised its Canadian dollar forecasts after
last week's rate cut, and now expects the currency will hit
C$1.32 this year, but said there's a good risk it will be weaker
than that.
    RBC Capital Markets said on Friday it expects USD/CAD to
weaken to C$1.34, or 74.63 U.S. cents, by mid-year, before
firming as oil prices recover somewhat and the benefits of a
weaker currency begin to be reflected in the economy.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 6.5 Canadian
cents to yield 0.414 percent and the benchmark 10-year
 rising 59 Canadian cents to yield 1.305 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)