December 28, 2016 / 9:58 PM / 7 months ago

Year-end flows drive C$, oil remains firm

2 Min Read

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart in quiet holiday trading on Wednesday, but not before touching its weakest level in 10 months earlier in the session.

The Canadian dollar's moves were mostly driven by flows, however, as the year winds to a close and with many Canadian participants off during a holiday-shortened work week.

"Anytime the market touches a new (USD/CAD) high in a such a quiet market, it's suspicious," said Adam Button, currency analyst at ForexLive in Montreal. "It's flows, it's settling of accounts."

The Canadian dollar CAD=D4 closed at C$1.3555, or 73.77 U.S. cents, marginally firmer than Tuesday's close of C$1.3577, according to Thomson Reuters data.

It was weaker, however, compared with the Bank of Canada's last official close of C$1.3535, or 73.88 U.S. cents on December 23.

The currency's strongest level of the session was C$1.3539. It touched its weakest level since Feb. 25 against the greenback, trading at C$1.3598 early in the North American session. The U.S. dollar firmed on continued expectations the Federal Reserve will raise interest rates next year to keep step with inflation and growth.

The price of oil, a key Canadian export, held near levels not seen since mid-2015. Prices have gained some 25 percent since mid-November, helped in part by expectations for OPEC's supply cut.

Canadian government bond prices were mostly across the maturity curve, with the two-year CA2YT=RR price up 3.5 Canadian cents to yield 0.777 percent and the benchmark 10-year CA10YT=RR rising 56 Canadian cents to yield 1.731 percent.

Reporting by Solarina Ho; Editing by Marguerita Choy

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