CANADA FX DEBT-C$ at 1-1/2-month low as investors mull policy shift

Reuters

* C$ at C$1.0455 vs US$, or 95.65 U.S. cents

* Loonie down for third session following central bank shift

* Canadian bond prices higher across the curve

By Leah Schnurr

TORONTO, Oct 25 (Reuters) - The Canadian dollar languished

at a 1-1/2-month low on Friday after this week's policy shift by

the country's central bank led investors to believe interest

rates will stay at current low levels for longer than had been

anticipated.

Highlighting weaker-than-expected growth and inflation, the

Bank of Canada on Wednesday dropped any mention of eventual rate

increases from its latest policy statement after more than a

year of warning that rates will one day have to rise.

The central bank has kept its key rate at 1 percent since

2010, and analysts said the removal of its rate-rise bias gives

its policy stance a more neutral tone.

"It signaled a fairly significant move and has been a bit of

a game-changer for the Canadian dollar," said Jack Spitz,

managing director of foreign exchange at National Bank Financial

in Toronto.

Analysts had until recently largely expected the bank to

resume raising rates at the end of next year. A Reuters poll

showed Canada's primary dealers now expect the Bank of Canada to

keep its key rate at 1 percent well into 2015.

The Canadian dollar ended the North American

session at C$1.0455 versus the greenback, or 95.65 U.S. cents,

weaker than Thursday's close of C$1.0425, or 95.92 U.S. cents.

During the session it fell as low as C$1.0461, its lowest level

since early September.

The loonie lost 1.6 percent this week, its worst week since

mid-June, according to Reuters data.

"The viewpoint by and large on the Street now is that the

Canadian dollar is poised for additional weakness, and I think a

move through C$1.05 will likely attract more momentum," Spitz

said.

Canadian gross domestic product for August is on investors'

radar for next week, as is a two-day meeting of the U.S. Federal

Reserve's policy-setting committee.

The Fed surprised markets in September with its decision to

continue its stimulative bond-buying program at a $85 billion a

month pace, rather than trimming the amount.

The loonie touched a three-month high following the

September Fed announcement but it has weakened since. Analysts

see the Canadian dollar benefiting from any delay in the Fed's

withdrawal from quantitative easing as the currency should

attract some risk appetite.

Canadian government bond prices were higher across the

maturity curve. The two-year bond was up 3 Canadian

cents to yield 1.083 percent, and the benchmark 10-year bond

added 8 Canadian cents to yield 2.416 percent.

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