January 26, 2015 / 3:38 PM / 4 years ago

C$ extends retreat as Bank of Canada rate cut impact lingers

TORONTO (Reuters) - The Canadian dollar continued to test new 5-1/2 lows against its U.S. counterpart on Monday, extending last week’s hefty losses after the Bank of Canada blindsided markets with a 25 basis point cut to its benchmark interest rate.

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie

The Bank of Canada delivered the wholly unexpected rate cut last Wednesday, its first rate change since September 2010, ending the longest period of unchanged rates in Canada since 1950

“It’s a continuation of what we’ve seen over the past week or so, of financial markets digesting the news from the Bank of Canada, that they’re much more worried than what analysts were expecting,” said Charles St-Arnaud, senior economist and strategist at Nomura Securities in London.

“In general, a very gradually weakening trend ... we’ll see over next few weeks and probably even months.”

At 9:32 a.m. (1432 GMT), the Canadian dollar CAD=D4 was at C$1.2443 to the greenback, or 80.37 U.S. cents, weaker than Friday’s close of C$1.2424, or 80.49 U.S. cents.

Earlier in the session, the Canadian dollar retreated as far as C$1.2476, or 80.15 U.S. cents, its weakest level since April 2009. Last week, the loonie tumbled 3.7 percent.

Crude prices turned positive on Monday after the secretary-general of the OPEC producer group said he expected the market to bottom out around current levels, which helped temper some earlier losses.

Because Canada is a major oil exporter, the Canadian dollar has taken a beating alongside crude prices, which have tumbled since June on dwindling demand and a glut in the global stockpile.

One of this week’s main economic events will likely be the U.S. Federal Reserve’s statement after it meets on Tuesday and Wednesday. St-Arnaud said he expects the statement will show little change in policy. The Fed is widely expected to raise rates in mid 2015.

Canadian government bond prices were mixed across the maturity curve, with longer-term securities falling. The two-year bond CA2YT=RR eased 2 Canadian cents to yield 0.546 percent and the benchmark 10-year bond CA10YT=RR slipped 28 Canadian cents to yield 1.473 percent.

Reporting by Solarina Ho; Editing by Peter Galloway

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