CANADA FX DEBT-C$ falls through 80 U.S. cents after Fed statement
(Adds strategist's comment, updates prices to close) * Canadian dollar at C$1.2520, or 79.87 U.S. cents * Bond prices higher across the maturity curve By Alastair Sharp TORONTO, Jan 28 (Reuters) - The Canadian dollar fell sharply against the greenback on Wednesday, closing below the key psychological barrier of 80 U.S. cents, after the U.S. Federal Reserve stuck with the view that U.S. interest rates could rise this year. The Fed's outlook contrasted with the Bank of Canada's shock rate cut of last week, and that divergence in monetary policy, coupled with cheap oil, is likely to keep pressure on the loonie, as Canada's currency is colloquially known. "That will remain one of the key underlying drivers of further strength in dollar/Canada, on top of the obvious support from very low oil prices now," said Greg Moore, senior currency strategist at Royal Bank of Canada. Prices for oil, a major Canadian export, dropped anew on Wednesday as record-high U.S. inventories fed longstanding fears of a global glut. The Canadian dollar ended the day at C$1.2520 to the greenback, or 79.87 U.S. cents, much softer than Tuesday's close of C$1.2404, or 80.62 U.S. cents. It was the loonie's weakest close since April 1, 2009, and indicated a sustained breach of psychologically important levels. "It is fairly significant if we close below that level if you're talking 80 cents, or above that level if you're talking C$1.25," said Moore, who noted it means determined selling of the Canadian currency against large amounts of corporate hedging at those levels. The Fed said in a statement on Wednesday that the U.S. economy was expanding "at a solid pace", striking an upbeat tone in contrast to other major central banks, including the Bank of Canada, and holding to the view that energy-led weakness in U.S. inflation would dissipate. "Certainly we've had a divergence globally," said Scotiabank chief currency strategist Camilla Sutton. Canadian government bond prices jumped across the maturity curve, leading to record low yields. The two-year rose 10.5 Canadian cents to yield 0.444 percent, while the benchmark 10-year added 75 Canadian cents to yield 1.355 percent. (Additional reporting by Solarina Ho; Editing by Peter Galloway)
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