CANADA FX DEBT-C$ falls, bonds rise as more rate cuts seen

Tue Dec 9, 2008 5:05pm EST
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* Bank of Canada cuts key rate to 50-yr low of 1.5 pct

* Canadian dollar finishes volatile session lower

* Bonds rise, short end gains as BoC declares recession

By Ka Yan Ng

TORONTO, Dec 9 (Reuters) - The Canadian dollar fell more than half a U.S. cent on Tuesday after the Bank of Canada cut its key interest rate by a bigger than expected 75 basis points and declared for the first time that the Canadian economy is entering a recession.

Bond prices rose sharply, reflecting expectations of further rate cuts as the economy weakens.

The currency finished at C$1.2646 to the U.S. dollar, or 79.08 U.S. cents, down from C$1.2540 to the U.S. dollar, or 79.74 U.S. cents, at Monday's close.

The Canadian dollar fell as low as C$1.2743, or 78.47 U.S. cents, after the rate decision, from C$1.2640, just before the Bank of Canada cut its overnight rate to a 50-year low of 1.5 percent. [ID:nN092350]

Most analysts had expected a cut of at least a 50 basis points but talk had been growing that there would be more aggressive action.   Continued...