CANADA FX DEBT-C$ hits more than six-year low in rate cut aftermath

Thu Jul 16, 2015 5:11pm EDT
 
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(Updates with closing figures, Smith comment)
    * Canadian dollar at C$1.2970 or 77.10 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, July 16 (Reuters) - The weakness of the Canadian
dollar against its U.S. counterpart continued on Thursday, a day
after the Bank of Canada cut its key interest rate for the
second time this year, sending the currency to lows last plumbed
in March 2009.
    Adding to the pressure was the U.S. dollar's trading near
1-1/2 month highs against a basket of major currencies, with the
U.S. Federal Reserve this week reiterating its intention to
raise interest rates sometime this year, in sharp contrast to
Canada's central bank.
    "We're seeing ... some continued pessimistic sentiment
toward the Canadian dollar," said Scott Smith, senior market
analyst at Cambridge Global Payments in Calgary.
    "Obviously with the likelihood of Canada entering the
technical definition of a recession, all eyes are going to be on
how the incoming data develops and whether the bank will have to
cut rates again."    
    While there could be some near-term pullback, a number of
currency strategists see the loonie breaking through the C$1.30
barrier over the medium to longer term, particularly with the
expected Fed increase still looming. But how much further the
Canadian dollar will retreat and how long it can sustain those
levels will depend in large part on how much of the Fed's
intentions are priced into the market.
    The Canadian dollar was trading at C$1.2970 to the
greenback, or 77.10 U.S. cents, softer than the Bank of Canada's
official Wednesday finish at C$1.2920, or 77.40 U.S. cents.
    The currency traded between $1.2905 and C$1.2970.
    Smith said traders were continuing to pile in on the short
side of the Canadian dollar.
    There was little domestic data on Thursday to budge the
currency. However, Canadian and U.S. consumer price inflation
data for June are due on Friday at 8:30 a.m. EDT (1230 GMT). If
the Canadian CPI comes in soft, the currency could test
C$1.3060. 
    Canadian government bonds were mixed across the maturity
curve, with the medium-term bond prices falling. The two-year
 fell 3.5 Canadian cents in price to yield 0.417
percent, and the benchmark 10-year slid 16 Canadian
cents to yield 1.579 percent.
    The Canada-U.S. two-year bond spread was -24.4 basis points,
while the 10-year spread was -77.7 basis points.

 (Reporting by Solarina Ho; Editing by Lisa Von Ahn and Steve
Orlofsky)