CANADA FX DEBT-C$ dips to new 12-year low; 10-year yield hits record low
* Canadian dollar at C$1.4453, or 69.19 U.S. cents * Currency hit a new 12-year low at $1.4547 * Bond prices higher across the maturity curve * 10-year yield hit new record low at 1.154 percent TORONTO, Jan 15 (Reuters) - The Canadian dollar dropped to a fresh 12-year low against its U.S. counterpart and Canada's 10-year yield hit a record low, pressured by a deeper dive in crude oil prices and increased bets that the Bank of Canada will cut rates next week. Early declines of about 2 percent on U.S. stock indexes added to pressure on the risk-sensitive commodity currency, while bond yields were driven lower as weaker-than-expected U.S. retail sales data lessened the prospects of additional U.S. Federal Reserve interest-rate hikes. "The market is thinking of additional cuts, oil keeps getting punished and all these things contribute to the weaker Canadian dollar," said Andrew Kelvin, senior rates strategist at TD Securities. The implied probability of a domestic rate cut next week has increased to 56 percent from just 22 percent after a speech last week by Bank of Canada Governor Stephen Poloz. Moreover, the market has fully discounted a rate cut by April and it has implied a one-third chance of an additional rate cut by the end of the year. U.S. retail sales unexpectedly fell in December, adding to signs that economic growth braked sharply in the fourth quarter. "It doesn't help Canada," said Kelvin. Signs that the U.S. economy is not quite as strong as people had previously thought "gives a little less hope for the Canadian export sector," he added. U.S. crude prices were down 4.55 percent to $29.78 a barrel. At 9:34 a.m. EST (1434 GMT), the Canadian dollar was trading at C$1.4453 to the greenback, or 69.19 U.S. cents, weaker than the Bank of Canada's official close Thursday of C$1.4362, or 69.63 U.S. cents. The currency's strongest level of the session was C$1.4345, while it hit its weakest since April 2003 at C$1.4547. Adding to headwinds for the currency, sales of existing homes in Canada fell in December from November, a report from the Canadian Real Estate Association showed. Canadian government bond prices were higher across the maturity curve, with the two-year price up 5.5 Canadian cents to yield 0.288 percent and the 10-year rising 52 Canadian cents to yield 1.175 percent. It hit a record low at 1.154 percent. The curve flattened in sympathy with U.S. Treasuries, as the spread between the 2-year and 10-year yields narrowed 2.9 basis points to 88.7 basis points, indicating outperformance for longer-dated maturities. The Canada-U.S. 10-year bond spread was 3.1 basis points less negative at -83.5 basis points as Treasuries outperformed. (Reporting by Fergal Smith; Editing by Bernadette Baum)
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