CANADA FX DEBT-C$ sinks to 4-1/2 year low on U.S. rate hike concern
* Canadian dollar at C$1.1263 or 88.79 U.S. cents * Bond prices lower across the maturity curve By Leah Schnurr TORONTO, March 20 (Reuters) - The Canadian dollar weakened to a 4-1/2 year low against the greenback on Thursday, hurt by the combination of a dovish Bank of Canada and concerns the United States could raise interest rates sooner than had been expected. Federal Reserve Chair Janet Yellen said on Wednesday the Fed will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later. The possibility of a U.S. rate hike sooner than many had anticipated weighed heavily on global stocks and drove the U.S. dollar higher. The rethink on U.S. rates comes at a time when the Bank of Canada has left the door open to a possible rate cut and that divergence pressured the loonie, which was weaker for the third session in a row. "That's a perfect storm that pushed us decisively through C$1.12 over the last couple days," said David Tulk, chief Canada macro strategist at TD Securities in Toronto. The Canadian dollar was at C$1.1263 to the greenback, or 88.79 U.S. cents, weaker than Wednesday's close of C$1.1245, or 88.93 U.S. cents. The currency traded as low as C$1.1279, its weakest since July 2009. Bank of Canada Governor Stephen Poloz warned of the risk of a prolonged period of sluggish growth and low interest rates in a speech earlier this week that analysts said was more dovish than expected. When asked whether he could rule out a rate cut, Poloz said he could not, which markets latched on to and sent the Canadian dollar lower. "Poloz is recognizing that the only way to grow the Canadian economy at this point is through the export channel, so even though he won't admit it, he would like to see a weaker currency," Tulk said. The loonie has traded in a relatively narrow range in recent weeks, consolidating after a sharp selloff in January. Some analysts expect the current move lower could mark a return of the bearish sentiment prevalent at the start of the year. "It seems like the more likely direction is obviously for more Canadian dollar weakness," Tulk said. Canadian government bond prices were lower across the maturity curve, with the two-year down 3 Canadian cents to yield 1.078 percent and the benchmark 10-year down 15 Canadian cents to yield 2.494 percent. (Editing by Peter Galloway)
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