(Adds background details in 4th paragraph and analyst comment in 5th paragraph and updates prices)
* Canadian dollar ends at C$1.3259, or 75.42 U.S. cents
* Loonie touches weakest since Jan. 11 at C$1.3269
* Bond prices mixed across steeper yield curve
By Fergal Smith
TORONTO, Jan 18 (Reuters) - The Canadian dollar slumped to a one-week low against its U.S. counterpart on Wednesday as oil fell and Bank of Canada Governor Stephen Poloz kept alive prospects of an interest rate cut.
A rate cut remains "on the table" if the risks facing the country are realized, the Bank of Canada said, warning there would be "material consequences" if U.S. President-elect Donald Trump enacts protectionist policies. market understood that even though (the central bank) revised its forecast higher that it still had a rate cut at the back of its mind," said Jimmy Jean, senior economist at Desjardins.
The Bank of Canada has not moved rates since July 2015 when it cut to 0.50 percent. The threat of additional easing pressured the loonie to its weakest since Jan. 11 at C$1.3269 to the greenback. It was at C$1.3090 before Poloz spoke at a news conference following the central bank's rate decision.
Market participants who had got long Canadian dollars were forced to cover as the currency tumbled, said Michael Goshko, corporate risk manager at Western Union Business Solutions.
The Canadian dollar CAD=D4 ended at C$1.3259, or 75.42 U.S. cents, much weaker than Tuesday's close of C$1.3058, or 76.58 U.S. cents.
On Tuesday, the loonie reached a nearly three-month high at C$1.3019, helped by recent upbeat domestic data.
"I think what this (interest rate announcement) really hammers home is that they (the Bank of Canada) are in no mood to raise interest rates this year," said Andrew Kelvin, senior rates strategist at TD Securities.
The implied probability of a rate hike by the end of the year dipped to 37 percent from 40 percent before the announcement, data from the overnight index swaps market showed. BOCWATCH
The U.S. dollar .DXY rose against a basket of major currencies, boosted by comments from Federal Reserve Chair Janet Yellen that suggested the U.S. central bank was ready to raise overnight interest rates quickly in the coming year. crude CLc1 prices settled $1.40 lower at $51.08 a barrel, pressured by a strong U.S. dollar and expectations that U.S. producers would boost output. is one of Canada's major exports.
Canadian government bond prices were mixed across a steeper yield curve, with the 2-year CA2YT=RR up 2.5 Canadian cents to yield 0.766 percent and the 10-year CA10YT=RR falling 32 Canadian cents to yield 1.705 percent.
The 2-year yield fell 8.1 basis points further below its U.S. equivalent to a spread of -46.0 basis points, as Canadian government bonds outperformed.