CANADA FX DEBT-C$ at 4-yr low as Bank of Canada leaves door open for rate cut

Wed Jan 22, 2014 10:42am EST

* Canadian dollar at C$1.1042 or 90.56 U.S. cents
    * Bond prices mostly higher across the maturity curve


    By Leah Schnurr
    TORONTO, Jan 22 (Reuters) - The Canadian dollar tumbled to a
more than four-year low against the greenback on Wednesday after
the Bank of Canada signaled it is more concerned about weak
inflation than it was three months ago and left the door open to
an interest rate cut if risks worsen.
    The Bank held interest rates at 1 percent, as expected, but
said that its next move on rates could be either down or up,
depending on how the data unfolds. 
    "It's probably as dovish as they could go without adopting
an outright easing bias," said David Tulk, chief Canada macro
strategist at TD Securities in Toronto.
    The loonie has lost more than 6 percent since late October
last year when the Bank of Canada shifted policy by dropping any
talk of interest rate hikes after 18 months of signaling that
policy tightening was on the horizon.
    The sell-off has deepened since the start of the year. Just
three weeks into 2014, the U.S. dollar has appreciated more than
3 percent against the Canadian dollar.
    The Canadian dollar was at C$1.1042 to the
greenback, or 90.56 U.S. cents, weaker than Tuesday's close of
C$1.0972, or 91.14 U.S. cents. The loonie hit a session low of
C$1.1049 shortly after the bank announcement, its weakest level
since September 2009.   
    "There is a lot of reference to the depreciation of the
Canadian dollar and how that is expected to help exports, but
they also reference the persistent strength of the Canadian
dollar, saying that it remains strong and will continue to pose
challenges for Canada's non-commodity exports," said Camilla
Sutton, chief currency strategist at Scotiabank in Toronto
    "In a sense, they are saying that they still see the
Canadian dollar as fairly strong, even at these levels."
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year up 3 Canadian
cents to yield 1.017 percent and the benchmark 10-year
 up 8 Canadian cents to yield 2.498 percent.
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