CANADA FX DEBT-C$ at 3-year low as central bank flags inflation risk
* C$ at C$1.0676 vs US$, or 93.67 U.S. cents * C$ weakens further after Bank of Canada statement * Bond prices mixed across the maturity curve By Leah Schnurr TORONTO, Dec 4 (Reuters) - The Canadian dollar weakened to a three-year low against the greenback on Wednesday after the Bank of Canada sounded a touch more dovish in its outlook, highlighting the risks of undesirably weak inflation. The currency hit a session low shortly after the central bank's statement was released, extending recent losses for the battered loonie. The Canadian dollar has fallen in five of its last six sessions, dropping through key support levels as bearish sentiment builds. The Bank of Canada's statement showed it is increasingly concerned about possible disinflation, though it added that the balance of risks remained within the range of possibilities it identified at its last meeting in October. "The statement is obviously more dovish than the prior statement, so it's a negative for the currency," said Robert Kavcic, senior economist at BMO Capital Markets. "I think if you read between the lines, they do have their eye on the Canadian dollar and would be perfectly happy to see it at a lower (weaker) level." Wednesday's statement was the first following a policy shift in October, when the central bank dropped any mention of a rate hike, catching markets off guard. Since that meeting in October, the loonie has lost more than 3 percent as the currency has also been pressured by weak oil prices and prospects that the Federal Reserve could begin winding down its economic stimulus sooner rather than later. The Canadian dollar was at C$1.0676 to the greenback, or 93.67 U.S. cents, weaker than Tuesday's close of C$1.0649 or 93.91 U.S. cents. The loonie traded as far as C$1.0698, its lowest level since May 2010. As was widely expected, the central bank also held interest rates at 1 percent, where they have been since 2010. October's policy shift pushed out market expectations for the next rate hike into 2015. The two-year bond edged up half a Canadian cent to yield 1.069 percent, while the benchmark 10-year bond fell 36 Canadian cents to yield 2.633 percent.
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