CANADA FX DEBT-C$ hits 12-year low as oil slides, business sentiment sours
(Adds analyst quotes, details on business sentiment; updates prices) * Canadian dollar at C$1.4223, or 70.31 U.S. cents * Currency drops to a fresh 12-year low * Bond prices mixed across the maturity curve * Curve steepens in sympathy with U.S. Treasury curve By Fergal Smith TORONTO, Jan 11 (Reuters) - The Canadian dollar dropped to a fresh 12-year low against its U.S. counterpart on Monday, pressured by a plunge in crude oil prices and evidence that Canadian business sentiment has deteriorated. The combination of negative factors added to pressure on the Bank of Canada to take further action after having cut interest rates twice in 2015. The market has fully discounted a 25 basis point rate cut by mid-year. "There are only two types of news for the Canadian dollar right now - bad news and worse news - and it was mostly the latter today," said Adam Button, currency analyst at ForexLive in Montréal. A brutal selloff in oil markets quickened on Monday, with prices plunging to new 12-year lows as further ructions in China's stock market threatened to knock crude as low as $20 a barrel. "Given the decline in oil today, it is impressive that the Canadian dollar hasn't fallen further," said Button. The negative effects of lower oil and commodity prices have caused business sentiment in Canada to deteriorate over the last three months, the Bank of Canada's quarterly Business Outlook Survey found. "The market is deeply skeptical that the Bank of Canada's forecast for growing Canadian exports will come to fruition," said Button. The Canadian dollar ended at C$1.4223, or 70.31 U.S. cents, weaker than the Bank of Canada's official close of C$1.4149, or 70.68 U.S. cents. The currency's strongest level of the session was C$1.4065, while it hit its weakest level since May 2003 at C$1.4245. Adding to the headwind for the Canadian dollar, a report from the Canadian Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts fell to 172,965 units in December from an upwardly revised 212,028 units in November. Forecasters had expected 200,000 starts. U.S. crude prices settled at $31.41 a barrel, down 5.3 percent, while Brent crude lost 6.8 percent to $31.28. Canadian government bond prices were mixed across the maturity curve, with the two-year price up 4.5 Canadian cents to yield 0.393 percent and the benchmark 10-year falling 23 Canadian cents to yield 1.323 percent. The curve steepened as the spread between the 2- and 10-year yields widened by 4.8 basis points to 93.0 basis points, indicating underperformance for longer-dated maturities. The Canada-U.S. 10-year bond spread also widened, 1.8 basis points to -85.1 basis points as U.S. Treasuries underperformed. (Reporting by Fergal Smith; editing by Nick Zieminski and G Crosse)
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