CANADA FX DEBT-C$ hits 5-1/2 year lows after weak data, IMF outlook

Tue Jan 20, 2015 9:59am EST
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* Canadian dollar at C$1.2050 or 82.99 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Jan 20 (Reuters) - The Canadian dollar weakened to
the lowest in more than 5-1/2 years against its U.S. counterpart
on Tuesday after factory sales data came in soft and the
International Monetary Fund (IMF) cut its forecast for economic
growth in Canada.
    Manufacturing sales fell by 1.4 percent in November due to a
sharp decrease in vehicle sales, according to Statistics Canada.
The figure was double the expected decline, and the third slide
in four months. 
    The IMF report trimmed its economic outlook for Canada in
2015 and 2016, and also forecast lower global economic growth.
    "(The data and report) also adds to the expectations that
the Bank of Canada will mark down its own growth forecasts for
this year," said Bipan Rai, director of foreign exchange
strategy at CIBC World Markets.
    The Bank of Canada will issue its quarterly Monetary Policy
Report on Wednesday morning. It is widely expected to keep
interest rates unchanged, but trim its growth forecasts.
    At 9:34 a.m. (1434 GMT), the Canadian dollar was 
at C$1.2050 to the greenback, or 82.99 U.S. cents, more than a
cent weaker than Monday's finish of C$1.1947, or 83.70 U.S.
cents, and the weakest level since April 2009.
     The Canadian dollar was weaker against most major
    Rai said the market was also pricing in expectations that
closing the output gap in Canada will take longer than the Bank
of Canada has estimated, as well as the risk that the central
bank could cut rates sometime in the coming year.
    Rai there was scope for the loonie to weaken to the C$1.21
level as early as this week, depending on how neutral or dovish
the Bank of Canada will sound, and how much lower the growth
revisions will be.
    November retail sales and December inflation data on Friday
will also be key currency drivers.
    Canadian government bond prices were generally higher across
the maturity curve, except for the two-year bond,
which was flat with a yield of 0.859 percent and the benchmark
10-year bond, which was off 2 Canadian cents to
yield 1.518 percent.

 (Editing by Peter Galloway)