CANADA FX DEBT-C$ weakens ahead of mid-week rate decision, hits fresh 12-yr low
(Adds quotes, details on Canadian dollar bearish bets, updates prices) * Canadian dollar at C$1.4557 or 68.70 U.S. cents * Currency hit a fresh 12-year low at C$1.4650 * Bond prices lower across the maturity curve By Fergal Smith TORONTO, Jan 18 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday as crude oil prices remained fragile and the market braced for a potential Bank of Canada rate cut on Wednesday, but losses were pared after hitting a fresh 12-year low overnight. Oil prices slumped to a 2003 low below $28 per barrel as the market anticipated a rise in Iranian exports after the lifting of sanctions against Tehran over the weekend. Prospects are not too bullish for the Canadian dollar, according to Don Mikolich, executive director, foreign exchange sales at CIBC Capital Markets. He highlighted record low Canadian bond yields and depressed crude oil prices. Prime Minister Justin Trudeau struck a more downbeat note than typical on the battered currency as well as low oil prices, saying they hurt large parts of the economy. The government has promised to run budget deficits to boost the economy. U.S. markets were closed for the Martin Luther King Jr. Day holiday, making for a quieter than normal session. The Canadian dollar ended at C$1.4557 to the greenback, or 68.70 U.S. cents, weaker than the Bank of Canada's official close on Friday of C$1.4530, or 68.82 U.S. cents. The currency's strongest level of the session was C$1.4487, while it hit its weakest level since April 2003 at C$1.4650. The implied probability of a Bank of Canada rate cut on Wednesday was 64 percent, little changed from Friday. The market has fully discounted a rate cut by April and it has implied a one-third chance of an additional rate cut by the end of the year. "I don't know that a rate cut is going to be overly stimulative," said Mikolich. Fiscal stimulus will have more impact than monetary policy, he added. Bearish bets on the Canadian dollar remained elevated, but trimmed slightly in the week ended Jan. 12. Net short Canadian dollar dipped to 59,214 contracts from 60,130 contracts in the prior week, according to data from the Commodity Futures Trading Commission released on Friday. Canadian government bond prices were lower across the maturity curve, with the two-year price down 5 Canadian cents to yield 0.312 percent and the benchmark 10-year falling 11 Canadian cents to yield 1.163 percent. It hit a record low on Friday at 1.143 percent. (Reporting by Fergal Smith; Editing by Chizu Nomiyama and Chris Reese)
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