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Canadian dollar hits near 4-week low as rate cut bets climb

(Adds economist quote and details throughout; updates prices) * Canadian dollar falls 0.5% 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. “The spotlight is on the data,” said Ryan Brecht, a senior economist at Action Economics. “Weaker than expected growth or a sustained slowing in inflation could prompt a rate cut.” Chances of an interest rate cut at the central bank’s next rate decision on March 4 jumped to 20% from less than 5% before the policy decision, money market data showed. 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%. At 4:21 p.m. (2121 GMT), the Canadian dollar was trading 0.5% lower at 1.3138 to the greenback, or 76.12 U.S. cents, its biggest decline since Dec. 6. The currency, which climbed 5% in 2019, touched its weakest intraday level since Dec. 26 at 1.3152. The decline for the loonie came as the price of oil, one of Canada’s major exports, was pressured by a market surplus forecast by the International Energy Agency (IEA), as well as demand worries after the outbreak of a virus in China. U.S. crude oil futures settled 2.8% lower at $56.74 a barrel. Canadian government bond prices were higher across the yield curve, with the two-year up 15.5 Canadian cents to yield 1.544% and the 10-year rising 60 Canadian cents to yield 1.450%. The gap between Canada’s two-year yield and its U.S. equivalent narrowed by 7.2 basis points to a spread of 1.8 basis points in favor of the Canadian bond. (Reporting by Fergal Smith; Editing by David Gregorio and Peter Cooney)

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