CANADA FX DEBT-C$ falls, bonds soar after rate cut

Tue Dec 9, 2008 10:57am EST
 
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* Bank of Canada cuts rates 75 bps to 50-yr low of 1.5 pct

* Canadian dollar weakens after rate cut

* Bonds rise, short end surges as BoC declares recession

TORONTO, Dec 9 (Reuters) - The Canadian dollar fell hard against the U.S. dollar on Tuesday after the Bank of Canada cut its key interest rate by a bigger-than-expected 75 basis points.

Canadian bond prices surged, reflecting expectations of further rate cuts to come as the economy weakens.

At 10:20 a.m. (1520 GMT), the currency was at C$1.2682 to the U.S. dollar, or 78.85 U.S. cents, down from C$1.2540 to the U.S. dollar, or 79.74 69 U.S. cents, at Monday's close.

The Canadian dollar fell as low as C$1.2743 after the rate decision from C$1.2640, just before the Bank of Canada cut its key interest rate to a 50-year low of 1.50 percent and the bank also declared the Canadian economy to be in a recession. [ID:nN092350]

The market had expected a cut of at least a 50 basis points on Tuesday but talk had been growing that there would be more aggressive action.

"The Canadian dollar was trading under the expectation they were going to cut rates by half a point. The fact that they've done a bigger cut makes the Canadian dollar look less attractive on an international basis," said Craig Alexander, deputy chief economist at TD Bank.   Continued...