CANADA FX DEBT-C$ slips on rate cut bets despite reprieve from oil

Fri Jan 30, 2015 4:43pm EST
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* Canadian dollar closes at C$1.2711 or 78.67 U.S. cents
    * C$ hits C$1.28, or 78.13 U.S. cents, lowest since 2009
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, Jan 30 (Reuters) - The Canadian dollar touched its
weakest level in nearly six years versus the U.S. dollar on
Friday after data showed the domestic economy unexpectedly
shrank in November, spurring bigger bets on another central bank
rate cut.
    Canada's currency lost 2.2 percent of its value this week,
although the fall was somewhat offset in afternoon trade by a
sharp drop in a count of U.S. oil rigs that helped the
bedraggled oil market surge. 
    "Crude spiked based on the oil rig numbers...which gave some
life back to the loonie," said Bipan Rai, director of foreign
exchange strategy at CIBC World Markets.
    "Nevertheless, our view hasn't really changed, we still see
this as a buy the dip for dollar/Canada going forward. We really
don't expect there to be much to get in the way to a move to the
C$1.30 mark at this point."
    The Canadian dollar ended the session at C$1.2711
to the greenback, or 78.67 U.S. cents, weaker than Thursday's
close of C$1.2611, or 79.30. 
    It touched C$1.28, or 78.13 U.S. cents, its weakest level
since March 13, 2009, after data showed the economy contracted
by 0.2 percent in November. 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 75
percent chance of another cut in March.
    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. 
    "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."
    Issa said following last week's rate cut TD now expects the
currency to hit C$1.32 this year.
    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 10 Canadian
cents to yield 0.397 percent and the benchmark 10-year
 rising C$1.14 to yield 1.25 percent.

 (Additional reporting by Solarina Ho; Editing by Peter Galloway
and Grant McCool)