CANADA FX DEBT-C$ dips on rate cut talk, some losses pared after hitting 12-yr low

Thu Jan 14, 2016 9:45am EST
 
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* Canadian dollar at C$1.4351 or 69.68 U.S. cents
    * Currency hit a fresh 12-year low at C$1.4398
    * Bond prices mixed across the maturity curve

    TORONTO, Jan 14 (Reuters) - The Canadian dollar hit a fresh
12-year low against its U.S. counterpart on Thursday amid
speculation the Bank of Canada will cut its key interest rate
next week, although it pared some losses as crude oil prices
climbed.
    The implied probability of a rate cut next week has
increased to 50 percent from just 22 percent after a speech last
week by Bank of Canada Governor Stephen Poloz, while the market
has nearly fully discounted a rate cut by April. 
    Even so, a Reuters poll on Thursday showed that while
forecasters think stubbornly low oil prices will weigh on the
Canadian economy in 2016, a recession or further interest rate
cut by the Bank of Canada are not expected this year. 
    Oil prices rose, but remained near 12-year lows on the
prospect of Iran unleashing its oil on an oversupplied market
and with few signs of improving demand in a fragile global
economy. 
    U.S. crude prices were up 1.18 percent to $30.84 a
barrel, while Brent crude added 0.6 percent to
$30.48. 
    An attack by suicide bombers and gunmen in the heart of
Jakarta, the capital of Indonesia, weighed on sentiment, adding
to headwinds for risk-sensitive commodity currencies.
 
    At 9:20 a.m. EST (1420 GMT), the Canadian dollar 
was trading at C$1.4351 to the greenback, or 69.68 U.S. cents,
weaker than the Bank of Canada's official close Wednesday of
C$1.4345, or 69.71 U.S. cents.
    The currency's strongest level of the session was C$1.4335,
while it hit its weakest since April 2003 at C$1.4398.        
    Recent developments have moved BMO Capital Markets to
project a rate cut next week, according to a research note this
morning.
    They include sub-$30 crude oil, evidence in the Bank of
Canada's Business Outlook Survey that weakness in the commodity
sector is spreading to non-resource parts of the economy and
last week's speech by Poloz that mentioned the "tools" that the
central bank had at its disposal.
    New home prices in Canada rose by 0.2 percent in November
from October, pushed up by strength in the major regions of
Toronto and Vancouver, Statistics Canada said. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price down 1.5
Canadian cents to yield 0.316 percent and the benchmark 10-year
 rising 22 Canadian cents to yield 1.219 percent. It
left the 10-year yield sitting just above the August 2015 record
trough at 1.189 percent.
    The Canada-U.S. 10-year bond spread was 4.7 basis points
more negative at -87 basis points as Canadian government bonds
outperformed.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)