CANADA FX DEBT-C$ dips on rate cut talk, some losses pared after hitting 12-yr low
* Canadian dollar at C$1.4351 or 69.68 U.S. cents * Currency hit a fresh 12-year low at C$1.4398 * Bond prices mixed across the maturity curve TORONTO, Jan 14 (Reuters) - The Canadian dollar hit a fresh 12-year low against its U.S. counterpart on Thursday amid speculation the Bank of Canada will cut its key interest rate next week, although it pared some losses as crude oil prices climbed. The implied probability of a rate cut next week has increased to 50 percent from just 22 percent after a speech last week by Bank of Canada Governor Stephen Poloz, while the market has nearly fully discounted a rate cut by April. Even so, a Reuters poll on Thursday showed that while forecasters think stubbornly low oil prices will weigh on the Canadian economy in 2016, a recession or further interest rate cut by the Bank of Canada are not expected this year. Oil prices rose, but remained near 12-year lows on the prospect of Iran unleashing its oil on an oversupplied market and with few signs of improving demand in a fragile global economy. U.S. crude prices were up 1.18 percent to $30.84 a barrel, while Brent crude added 0.6 percent to $30.48. An attack by suicide bombers and gunmen in the heart of Jakarta, the capital of Indonesia, weighed on sentiment, adding to headwinds for risk-sensitive commodity currencies. At 9:20 a.m. EST (1420 GMT), the Canadian dollar was trading at C$1.4351 to the greenback, or 69.68 U.S. cents, weaker than the Bank of Canada's official close Wednesday of C$1.4345, or 69.71 U.S. cents. The currency's strongest level of the session was C$1.4335, while it hit its weakest since April 2003 at C$1.4398. Recent developments have moved BMO Capital Markets to project a rate cut next week, according to a research note this morning. They include sub-$30 crude oil, evidence in the Bank of Canada's Business Outlook Survey that weakness in the commodity sector is spreading to non-resource parts of the economy and last week's speech by Poloz that mentioned the "tools" that the central bank had at its disposal. New home prices in Canada rose by 0.2 percent in November from October, pushed up by strength in the major regions of Toronto and Vancouver, Statistics Canada said. Canadian government bond prices were mixed across the maturity curve, with the two-year price down 1.5 Canadian cents to yield 0.316 percent and the benchmark 10-year rising 22 Canadian cents to yield 1.219 percent. It left the 10-year yield sitting just above the August 2015 record trough at 1.189 percent. The Canada-U.S. 10-year bond spread was 4.7 basis points more negative at -87 basis points as Canadian government bonds outperformed. (Reporting by Fergal Smith; Editing by Bernadette Baum)
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