CANADA FX DEBT-C$ steadies after sinking to 5-1/2 year lows
* Canadian dollar at C$1.1968 or 83.56 U.S. cents * Bond prices lower across the maturity curve By Solarina Ho and Alastair Sharp TORONTO, Jan 16 (Reuters) - The Canadian dollar closed little changed against the greenback on Friday after breaching 5-1/2-year lows earlier in the day on expectations that the Bank of Canada might take a dovish stance in a major policy report next week. "It's the fourth session in a row where we're finishing close to where we started even though we've had some very volatile trading days," said Camilla Sutton, chief currency strategist at Scotiabank. "Typically that suggests some indecision in the market." The loonie, as Canada's currency is colloquially known, has fallen sharply in recent months in concert with a sharp decline in the price of oil, a major Canadian export. "We need to have some stability in oil markets before dollar/Canada's upside move will be complete," Sutton said. Some market participants predicted the Bank of Canada's Monetary Policy Report next week will show a pullback in the bank's growth and inflation forecasts, perhaps even showing a bias toward an interest rate cut, and that helped weaken the loonie through the key level of C$1.20 to the U.S. dollar. "Now that we have the market pricing in a higher likelihood of a (rate) cut by the Bank of Canada this year, that is going to weigh on the Canadian dollar over the short term," said Blake Jespersen, managing director of foreign exchange sales at BMO Capital Markets. The Canadian dollar ended the session at C$1.1968, or 83.56 U.S. cents, in line with Thursday's close of C$1.1964, or 83.58 U.S. cents. At one point the currency softened to C$1.2047, or 83 U.S. cents, its weakest level since the end of April 2009. It lost a cent on the week, with most of that damage coming on Monday. The commodities-linked loonie brushed off a move higher by crude oil, which rose on comments by the International Energy Agency that there were already signs the market selloff would end. "Oil has been the driver over the past few months but ... that correlation at least for the very, very short term has broken apart," Jespersen said. "Now interest rates and overall flight to quality have trumped that." Canadian government bond prices were lower across the maturity curve, with the two-year falling 13 Canadian cents to yield 0.876 percent and the benchmark 10-year declining 58 Canadian cents to yield 1.982 percent. (Editing by Peter Galloway)
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