CANADA FX DEBT-C$ plunges to 5-1/2-year low after shock rate cut

(Updates with fresh comment, closing figures, details)
    * Canadian dollar ends at C$1.2335 vs US$, or 81.07 U.S.
    * Bank of Canada cuts overnight rate to 0.75 percent,
slashes outlook
    * Canadian government bond yields hit record lows

    By Solarina Ho
    TORONTO, Jan 21 (Reuters) - The Canadian dollar retreated
nearly 2 percent to its weakest level since April 2009 after the
Bank of Canada shocked financial markets on Wednesday with an
interest rate cut, while bond yields fell to record lows.
    Canada was the latest central bank to surprise markets,
cutting its overnight rate to 0.75 percent from 1 percent as an
"insurance" against the impact of cheap crude prices on economic
growth and inflation, and the risks of a housing market
    The move was the first since September 2010, ending the
longest period of unchanged interest rates in Canada since 1950.
    "To me, that just screams a (central) bank that's looking to
tinker. For a bank that has one mandate, which is inflation,
this is all about the dollar," said Darcy Briggs, a fixed-income
portfolio manager with the Bissett unit of Franklin Templeton
    "The USD/CAD already had a very large bullish sentiment
behind it. This just added gasoline to the fire. Where it can
top out, I'm not sure."
    The Canadian dollar, which was underperforming all
other major currencies, finished at C$1.2335 to the U.S. dollar,
or 81.07 U.S. cents, more than two cents weaker than Tuesday's
close of C$1.2107, or 82.60 U.S. cents.
    Earlier in the session, the loonie touched C$1.2420, or
80.52 U.S. cents, its weakest since April 21, 2009.
    The market had begun pricing in a higher risk of a rate cut
but most forecasters believed the next move, while pushed
further back, would still eventually be a hike.
    "There were adjectives that I won't use, but yeah, there was
a collective gasp," said Jack Spitz, managing director of
foreign exchange at National Bank Financial. "We didn't see this
one coming."
    The Bank of Canada also dramatically slashed its inflation
and growth forecasts for the coming year, saying that lower oil
prices "will be unambiguously negative for the Canadian economy
in 2015 and subsequent years."
    Canada is the biggest foreign supplier of crude to the U.S.
market. The currency's moves have been closely tied to the price
of oil , which has plunged more than 50 percent
since June on a global supply glut and waning demand.
    Last week, the Swiss central bank stunned markets when it
withdrew a cap on the safe-haven franc against the euro
, and investors were awaiting the European Central
Bank, which will meet to discuss quantitative easing on
    Canadian government bond prices surged across the maturity
curve, with yields touching record lows. The two-year bond
 jumped 58.5 Canadian cents to yield 0.560 percent and
the benchmark 10-year climbed 51 Canadian cents to
yield 1.432 percent.

 (Additional reporting by Alastair Sharp; Editing by Jeffrey
Benkoe and James Dalgleish)