CANADA FX DEBT-C$ hits weakest in over 6 years after Bank of Canada rate cut
(Updates with fresh comment from CanadianForex and closing figures) * Canadian dollar drops as low as 77.17 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, July 15 (Reuters) - The Canadian dollar tumbled to its weakest level against its U.S. counterpart since March 2009 on Wednesday after the Bank of Canada cut its key interest rate for a second time this year as the economy struggles. The central bank announced a 25-basis-point cut to 0.5 percent, saying an unexpected economic contraction during the first half of the year had added excess capacity and put downward pressure on inflation. "It caught quite a few people off guard ... quite a dramatic jump," said CanadianForex currency payments analyst Ken Wills. "It definitely still could still break through that C$1.30 ... if we don't see it in the next 24 hours, it will probably act like a psychological barrier." The Canadian dollar finished at C$1.2920 to the greenback, or 77.40 U.S. cents, significantly weaker than its level just before the central bank announced the rate move, and sharply off the Bank of Canada's official close of C$1.2740, or $78.49 U.S. cents, on Tuesday. The currency weakened to as much as C$1.2958, or 77.17 U.S. cents during the trading session. "We were calling for a rate cut so we're not shocked, but it was admittedly a very close call, and clearly the market was not fully expecting this and we've seen a big reaction in both bonds and especially the Canadian dollar," said Doug Porter, chief economist at BMO Capital Markets. "Clearly the economy has disappointed in a significant way through the first half of the year, and it is not entirely due to the oil shock." The cut stands in sharp contrast to the U.S. Federal Reserve, which reiterated its intention on Wednesday to hike interest rates this year. In addition to driving the Canadian dollar to more than six-year lows, the move spurred gains in Canadian government bond prices, which outperformed U.S. Treasuries. The bond prices, which were lower before the decision, rose across the maturity curve. The two-year price was up 12 Canadian cents to yield 0.401 percent and the benchmark 10-year rose 55 Canadian cents to yield 1.593 percent. The Canada-U.S. two-year bond spread widened to -23.2 basis points, while the 10-year spread widened to -76.5 basis points. (Additional reporting by Andrea Hopkins; Editing by Peter Galloway and David Gregorio)
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