CANADA FX DEBT-C$ slips on rate cut bets despite reprieve from oil
* Canadian dollar closes at C$1.2711 or 78.67 U.S. cents * C$ hits C$1.28, or 78.13 U.S. cents, lowest since 2009 * Bond prices higher across the maturity curve By Alastair Sharp TORONTO, Jan 30 (Reuters) - The Canadian dollar touched its weakest level in nearly six years versus the U.S. dollar on Friday after data showed the domestic economy unexpectedly shrank in November, spurring bigger bets on another central bank rate cut. Canada's currency lost 2.2 percent of its value this week, although the fall was somewhat offset in afternoon trade by a sharp drop in a count of U.S. oil rigs that helped the bedraggled oil market surge. "Crude spiked based on the oil rig numbers...which gave some life back to the loonie," said Bipan Rai, director of foreign exchange strategy at CIBC World Markets. "Nevertheless, our view hasn't really changed, we still see this as a buy the dip for dollar/Canada going forward. We really don't expect there to be much to get in the way to a move to the C$1.30 mark at this point." The Canadian dollar ended the session at C$1.2711 to the greenback, or 78.67 U.S. cents, weaker than Thursday's close of C$1.2611, or 79.30. It touched C$1.28, or 78.13 U.S. cents, its weakest level since March 13, 2009, after data showed the economy contracted by 0.2 percent in November. On average, economists had forecast flat growth. Markets, hit by the Bank of Canada's bombshell 25 basis point interest rate cut last week, are now pricing in a 75 percent chance of another cut in March. A slew of U.S. economic data on Friday also included numbers that indicated economic growth slowed sharply in the fourth quarter due to weak business spending and a wider trade deficit, which offset strong consumer spending. "Certainly U.S. GDP disappointment does not help, but given the weakness in the Canadian dollar is broadly based on the crosses as well, there's definitely more concern that this may be the beginning of more weakness to come in Canadian growth." Issa said following last week's rate cut TD now expects the currency to hit C$1.32 this year. RBC Capital Markets said on Friday it expects USD/CAD to weaken to C$1.34, or 74.63 U.S. cents, by mid-year, before firming as oil prices recover somewhat and the benefits of a weaker currency begin to be reflected in the economy. Canadian government bond prices were higher across the maturity curve, with the two-year up 10 Canadian cents to yield 0.397 percent and the benchmark 10-year rising C$1.14 to yield 1.25 percent. (Additional reporting by Solarina Ho; Editing by Peter Galloway and Grant McCool)
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