CANADA FX DEBT-C$ dips on rate cut talk, losses pared after 12-year low
(Adds analyst quotes, updates prices) * Canadian dollar at C$1.4362, or 69.63 U.S. cents * Currency hit a fresh 12-year low at C$1.4398 * Bond prices mixed across the maturity curve By Fergal Smith 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 fully discounted a rate cut by April. There has been a "big change in view from on hold, now to cut, in just a span of two weeks," said Jennifer Lee, senior economist at BMO Capital Markets. 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. After moving to project a rate cut next week, BMO Capital markets has lowered its forecast for the Canadian dollar to 67.50 U.S. cents by mid-2016, according to Lee. "If it is not going to happen next week (a rate cut) we could see it happening in March, but probably just one move," said Lee. "It will be very difficult to continue cutting rates in an environment where the Fed (U.S. Federal Reserve) is actually raising," added Lee, pointing to the impact on the currency. Oil prices rebounded, snapping an eight-day rout, as some players covered short positions. U.S. crude prices settled at $31.20 a barrel, up 2.36 percent. The Canadian dollar ended at C$1.4362 to the greenback, or 69.63 U.S. cents, than the Bank of Canada's official close on Wednesday of C$1.4345, or 69.71 U.S. cents. 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 12 Canadian cents to yield 1.23 percent. It left the 10-year yield within reach of the August 2015 record trough at 1.189 percent. The Canada-U.S. 10-year bond spread was four basis points more negative at -86.3 basis points as Canadian government bonds outperformed for longer-dated maturities. (Editing by G Crosse)
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