CANADA FX DEBT-C$ at 4-yr low as Bank of Canada leaves door open for rate cut
* Canadian dollar at C$1.1088 or 90.19 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Jan 22 (Reuters) - The Canadian dollar tumbled to a more than four-year low against the greenback on Wednesday after the Bank of Canada signaled it is more concerned about weak inflation than it was three months ago and left the door open to an interest rate cut if risks worsen. The central bank held interest rates at 1 percent, as expected, but said its next move on rates could be either down or up, depending on how the data unfolds. After some weak economic data earlier in the month, including a surprise rise in the unemployment rate, markets had been speculating the central bank would take a more dovish tone. "It's probably as dovish as they could go without adopting an outright easing bias," said David Tulk, chief Canada macro strategist at TD Securities in Toronto. The loonie has now lost about 7 percent since late October last year when the Bank of Canada shifted policy by dropping any talk of interest rate hikes after 18 months of signaling that policy tightening was on the horizon. The Bank of Canada on Wednesday noted the positive impact on exports and economic growth of the Canadian dollar's recent depreciation, and said the currency's drop will also help lift inflation. But Bank of Canada Governor Stephen Poloz also said that the currency's moves are having less of an effect than they did a decade ago due to increased globalization. "The notion of an acceptance of a weaker Canadian dollar and how it would almost be needed to help us in the growth outlook" reinforced the day's downward move in the currency, said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada in Toronto. The Canadian dollar ended the North American session at C$1.1088 to the greenback, or 90.19 U.S. cents, weaker than Tuesday's close of C$1.0972, or 91.14 U.S. cents. The loonie hit a session low of C$1.1092, its weakest level since September 2009. The sell-off has deepened since the start of the year. Just three weeks into 2014, the U.S. dollar has appreciated more than 4 percent against the Canadian dollar. The swiftness of the drop has surpassed some analysts' expectations. With the push further into the C$1.10 area, the loonie has fallen past the level analysts and economists recently forecast it would be at in a year, when it was anticipated to trade at C$1.09. Investors will start to turn their attention to Friday's inflation data, which is expected to show the annual inflation rate picked up to 1.3 percent in December. Canadian government bond prices were higher across the maturity curve, with the two-year up 5 Canadian cents to yield 1.007 percent and the benchmark 10-year up 17 Canadian cents to yield 2.486 percent.
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