January 18, 2017 / 6:37 PM / 8 months ago

CANADA FX DEBT-C$ tumbles to 1-week low; Poloz says rate cut 'on the table'

(New throughout, updates prices and market activity, adds
comments from analysts and details on Bank of Canada rate
decision)
    * Canadian dollar at C$1.3216, or 75.67 U.S. cents
    * Loonie touches weakest since Jan. 11 at C$1.3235
    * Bond prices mixed across steeper yield curve

    By Fergal Smith
    TORONTO, Jan 18 (Reuters) - The Canadian dollar weakened to
a one-week low against its U.S. counterpart on Wednesday as oil
fell and Bank of Canada Governor Stephen Poloz kept alive
prospects of an interest rate cut.
    At a press conference following the central bank's interest
rate announcement Poloz said a rate cut "would remain on the
table for as long as downside risks are still present."
    The remark pressured the loonie to its weakest since Jan. 11
at C$1.3235 to the greenback. It was at C$1.3090 before the
press conference began.
    "The market understood that even though (the central bank)
revised its forecast higher that it still had a rate cut at the
back of its mind," said Jimmy Jean, senior economist at
Desjardins. 
    The central bank held its policy rate steady at 0.50
percent, as expected, saying the big unknown of what policies
U.S. President-elect Donald Trump will enact makes it prudent to
wait and see.    
    "I think what this (interest rate announcement) really
hammers home is that they are in no mood to raise interest rates
this year," said Andrew Kelvin, senior rates strategist at TD
Securities.
    The implied probability of a Bank of Canada rate hike by the
end of the year fell to 30 percent from 40 percent before the
announcement, data from the overnight index swaps market showed.
 
    At 1:13 p.m. ET (1813 GMT), the Canadian dollar was
trading at C$1.3216, or 75.67 U.S. cents, much weaker than
Tuesday's close of C$1.3058, or 76.58 U.S.
    The loonie reached on Tuesday a nearly three-month high at 
C$1.3019, helped by recent data that showed a surge in jobs in
December and the first trade surplus in more than two years in
November, while a Bank of Canada survey last week pointed to
improving business conditions.    
    Prices of oil, one of Canada's major exports, fell on
expectations that U.S. producers would boost output.
 
    U.S. crude prices were down 2.19 percent at $51.33 a
barrel.
    The U.S. dollar rose against a basket of major
currencies as investors bought the greenback after five
consecutive days of selling. 
    Canadian government bond prices were mixed across a steeper
yield curve, with the two-year up 4.5 Canadian cents
to yield 0.756 percent and the 10-year falling 4
Canadian cents to yield 1.673 percent.
    The two-year yield fell 5.1 basis points further below its
U.S. equivalent to a spread of -42.9 basis points, as Canadian
government bonds outperformed.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and David
Gregorio)

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