CANADA FX DEBT-C$ pulls back from 12-year low as rates held steady; oil drags
(Updates prices, adds comments) * Canadian dollar at C$1.4594 or 68.52 U.S. cents * Currency had hit a fresh 12-year low at C$1.4689 * Bond prices mixed as Bank of Canada holds steady * The 10-year yield hit a fresh record low at 1.094 percent By Fergal Smith TORONTO, Jan 20 (Reuters) - The Canadian dollar pared losses on Wednesday after the Bank of Canada left rates on hold, although the rebound from a fresh 12-year low was constrained by a worsening rout in crude oil prices and an extended selloff in global stocks. The rapid depreciation in the currency was seen by some as a reason for the Bank of Canada to leave rates on hold, even as the central bank marked down its economic projections. "(A rate cut) would send the wrong signal to the market at this point and time," said Darcy Briggs, a fixed-income portfolio manager with the Bissett unit of Franklin Templeton Investments. "The effects of the currency depreciation take time to come through the system," Briggs added. The focus shifted to whether the central bank will cut at its next interest rate announcement in March, or in April, when it delivers its next monetary policy report. "Our view is that they'll remain data-dependent," said Briggs. "By March, they will have a pretty good idea what the government's coming out with in terms of a budget and deficit spending." At 12:50 p.m. EST (1750 GMT), the Canadian dollar was trading at C$1.4594 to the greenback, or 68.52 U.S. cents, weaker than Tuesday's close of C$1.4559, or 68.69 U.S. cents. The currency's strongest level of the session was C$1.4491, while it hit its weakest since April 2003 at C$1.4689. U.S. oil prices crashed to below $27 for the first time since 2003, caught in a broad slump across world financial markets. "The short-term impact of the Bank decision will fade," said David Watt, chief economist at HSBC Bank Canada, pointing to the currency's tight relationship with crude oil prices. The financial turmoil overshadowed stronger than expected Canadian manufacturing sales and wholesale trade data for November. Canadian government bond prices were mixed across a much flatter maturity curve. The two-year price was down 15 Canadian cents to yield 0.363 percent as the rate decision weighed on the front-end. But the 10-year rose 50 Canadian cents to yield 1.124 percent as the flight to safety supported longer-term bonds. The 10-year yield hit a fresh record low at 1.094 percent. The Canada-U.S. two-year bond spread was 13.3 basis points less negative at -44.2 basis points, while the 10-year spread was 3.5 basis points less negative at -82.3 basis points as Canadian government bonds underperformed. (Editing by Nick Zieminski and Jonathan Oatis)
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