March 7, 2019 / 8:16 PM / 4 months ago

CANADA FX DEBT-C$ hits two-month low as bets rise on BoC rate cut in 2019

 (Adds economist quotes and details throughout; updates prices)
    * Canadian dollar falls 0.1 percent against the greenback
    * Loonie hits a two-month low at 1.3460
    * Money markets see chances of a rate cut this year at 35
percent
    * Canada's 2-year yield hits a 15-month low at 1.620 percent
    * Price of U.S. oil gains 0.8 percent

    By Fergal Smith
    TORONTO, March 7 (Reuters) - The Canadian dollar weakened to
its lowest in more than two months against the greenback on
Thursday following a speech from a deputy governor of the Bank
of Canada, as investors raised bets that the central bank may
cut interest rates this year.
    The Canadian economy is in for a longer-than-expected
"detour" as consumer spending, business investment and the
energy sector weigh, but economic growth is set to pick up later
in 2019, Bank of Canada Deputy Governor Lynn Patterson said.
            
    The speech came one day after the Bank of Canada held
interest rates steady as expected and said there was "increased
uncertainty" about the timing of future rate increases.
            
    "Today's speech by Deputy Governor Patterson did little
to change the market's dovish perception," said Royce Mendes, a
senior economist at CIBC Capital Markets. "The Bank of Canada
will likely have to lower their sights even further in the
months to come."    
    Money markets have moved to price in about a 35 percent
chance of an interest rate cut this year. Before Wednesday's
interest rate decision, the market had been pricing in a small
chance of a hike.           
    At 2:54 p.m. (1954 GMT), the Canadian dollar          was
trading 0.1 percent lower at 1.3456 to the greenback, or 74.32
U.S. cents. The currency touched its weakest intraday level
since Jan. 4 at 1.3460.
    The loonie lost ground as the greenback        rose against
a basket of major currencies. The U.S. dollar currency index was
boosted by a weaker euro, after the European Central Bank pushed
out the timing of its first post-crisis rate hike to next year
and offered banks new rounds of multi-year cash.                
    
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries and German bunds. The
two-year            rose 10 Canadian cents to yield 1.628
percent and the 10-year             climbed 52 Canadian cents to
yield 1.766 percent.    
    The two-year yield touched its lowest intraday since
December 2017 at 1.620 percent.
    The price of oil, one of Canada's major exports, was
supported by continuing OPEC-led supply cuts and U.S. sanctions
against exporters Venezuela and Iran. U.S. crude oil futures
       settled 0.8 percent higher at $56.66 a barrel.
            
    The value of Canadian building permits fell by 5.5 percent
in January from December, Statistics Canada said. Analysts had
expected a decrease of 5.0 percent.             
    Canada's employment report for February is due on Friday.

 (Reporting by Fergal Smith; Editing by Lisa Shumaker)
  
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