CANADA FX DEBT-C$ jumps after rate cut; oil still drags

Tue Jan 20, 2009 10:02am EST
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* C$ jumps after Canadian rate cut, but down from Monday

* BoC cuts rates 50 bps to 1.0 percent, as expected

By Jennifer Kwan

TORONTO, Jan 20 (Reuters) - Canada's dollar strengthened against the U.S. currency on Tuesday after the Bank of Canada cut its key overnight lending rate by 50 basis points, but remained down from Monday's levels as oil prices weighed.

At 9:48 a.m. (1448 GMT), the Canadian currency was at C$1.2606 to the U.S. dollar, or 79.33 U.S. cents. This was up from C$1.2675, or 78.90 U.S. cents shortly before the announcement, but still down from C$1.2547 to the U.S. dollar, or 79.70 U.S. cents, on Monday.

While generally lower from Monday, the currency may have firmed after the rate decision because a few market players were betting on a larger cut by the central bank, said Michael Gregory, senior economist BMO Capital Markets.

"There was a little, perhaps, disappointment by the market that there wasn't more of an aggressive move, which of course provides a little support for the Canadian dollar because spreads aren't as narrow as they otherwise would have been," he said.

A Reuters poll released late last week predicted the Bank of Canada will cut rates by at least 50 basis points to 1.0 percent to combat the global slowdown, which the central bank said has pushed the country into recession.

In choppy action, the price of oil CLc1 fell below $36 a barrel on resolution of a gas dispute between Russia and Ukraine. [ID:nSP284892]

Canadian government bond prices were largely lower, following U.S. Treasuries, which sank as supply concerns. (Editing by Jeffrey Hodgson)