CANADA FX DEBT-C$ falls below 70 U.S. cents for first time since May 2003
(Updates prices) * Canadian dollar last at C$1.4257, or 70.14 U.S. cents * Currency hit a fresh 12-year low at C$1.4316 or 69.85 U.S. cents * Bond prices higher across the maturity curve By Fergal Smith and Alastair Sharp TORONTO, Jan 12 (Reuters) - The Canadian dollar on Tuesday weakened below 70 U.S. cents for the first time since May 2003 as a slump in oil prices extended to $30 a barrel and traders increased their bets that the Bank of Canada will cut interest rates this month. The last time the Canadian dollar traded below that psychological threshold, U.S. crude oil prices were also trading below $30 a barrel, near the start of a bull run that would hit a record high above $147 a barrel by July 2008. This time around there is little hope oil prices will rebound anytime soon, with global production vastly outpacing demand and concern growing about weakening in No. 2 consumer China's economy. Oil fell briefly below $30 a barrel, extending a relentless selloff that has wiped almost 20 percent off prices this year. "We went up there (in U.S. dollar terms) very quickly," said David Bradley, director of foreign exchange trading at Scotiabank, "basically because of the meltdown in oil." The Canadian dollar ended at C$1.4257 to the greenback, or 70.14 U.S. cents, weaker than the Bank of Canada's official close from Monday of C$1.4223, or 70.31 U.S. cents. At one point it hit C$1.4316, or 69.85 U.S. cents, its weakest since April 2003. The sustained weakness in the price of oil, a major Canadian export, increases pressure on Canada's central bank to act. "People are calling for the Bank of Canada to cut rates at the next meeting," said Scotiabank's Bradley. The central bank's next interest rate announcement is on Jan. 20. The market has implied an almost one-in-three perceived chance of a cut, up from roughly one in five a week ago, and has fully discounted a rate cut by mid year. Speculation that the Bank of Canada will take further action after cutting rates twice in 2015 is also adding pressure on the currency, especially as the Federal Reserve has starting to raise U.S. rates. A Jan. 7 speech by Governor Stephen Poloz left investors doubtful he would cut Canada's benchmark rate this month. But the Bank of Canada's quarterly Business Outlook Survey has since revealed deterioration in sentiment. Canadian government bond prices were higher across the maturity curve, with the two-year price up 10 Canadian cents to yield 0.341 percent and the benchmark 10-year rising 57 Canadian cents to yield 1.262 percent. (Editing by James Dalgleish)
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