January 22, 2020 / 4:15 PM / 4 months ago

CANADA FX DEBT-Loonie hits near 4-week low as BoC rate cut bets jump

 (New throughout, updates prices and market activity, adds
comments from strategist)
    * Canadian dollar falls 0.4% against the greenback
    * Bank of Canada leaves benchmark rate at 1.75%
    * Canada inflation rate holds steady at 2.2% in December
    * Canadian bond prices rally across the yield curve

    By Fergal Smith
    TORONTO, Jan 22 (Reuters) - The Canadian dollar weakened to
a near four-week low against the greenback on Wednesday after
dovish comments by the Bank of Canada in a policy announcement
prompted investors to raise bets on interest rate cuts in the
coming months.
    The central bank maintained its key overnight interest rate
at 1.75% as expected but opened the door to a possible cut
should a recent slowdown in Canadian economic growth drag on.
             
    "Rates are going to change at some point this year is what
markets have taken out of it," said Simon Harvey, FX market
analyst for Monex Europe and Monex Canada. "You are seeing
USD-CAD completely rally off the back of it."
    Chances of an interest rate cut at the central bank's next
rate decision on March 4 jumped above 20% from less than 5%
before the policy decision.           
    Bank of Canada Governor Stephen Poloz and Senior Deputy
Governor Carolyn Wilkins are due to hold a press conference at
11:15 ET (1615 GMT).     
    At 10:51 a.m. (1551 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3132 to the greenback, or 76.15 U.S.
cents. The currency, which climbed 5% in 2019, touched its
weakest intraday level since Dec. 27 at 1.3140.
    Earlier in the day, data from Statistics Canada showed that
Canada's annual inflation rate held steady at 2.2% in December,
close to the Bank of Canada's 2% target, and wholesale trade
fell for the third time in five months in November, declining
1.2%.                         
    The decline for the loonie on Wednesday came as the price of
oil, one of Canada's major exports, fell. U.S. crude oil futures
       were down 2.2% at $57.08 a barrel. 
    Canadian government bond prices were higher across the yield
curve, with the two-year            price up 14 Canadian cents
to yield 1.552% and the 10-year             rising 59 Canadian
cents to yield 1.451%.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 6.4 basis points to a spread of 2.6 basis
points in favor of the Canadian bond.

 (Reporting by Fergal Smith
Editing by Nick Zieminski and David Gregorio)
  
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