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TORONTO (Reuters) - The Canadian dollar strengthened sharply against a broadly weaker U.S. currency on Friday, touching its strongest level in a week as traders rebalanced their books at the end of the fiscal year for Canadian banks.
The loonie, as Canada's currency is colloquially known, has gained steadily over the last three days in part on crude oil price gains. It added 0.7 percent for the week and 2 percent over the course of October.
"There are plenty of dollars moving around in different directions," Brad Schruder, a director of foreign exchange sales at BMO Capital Markets, said of Friday's trading.
"At the same time, I think the big dollar in and of itself is about to go through a period of weakness, so I would suspect that the Canadian dollar continues to do a little bit better over the next few sessions," he said.
The Canadian dollar CAD=D4 settled at C$1.3075 to the greenback, or 76.48 U.S. cents, compared with Thursday's close of C$1.3167, or 75.95 U.S. cents.
It moved in a wide range, as weak as C$1.3193 and as strong as C$1.3056, its strongest point since Oct. 23.
Investors are torn between those who expect the U.S. Federal Reserve to start raising interest rates later this year and those who feel economic weakness will force them to delay the first hike until 2016.
"The wider theme I would say is towards a stronger U.S. dollar on the heels of the Fed," said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank. "It's very much a wait-and-see proposition at this stage."
U.S. crude prices CLc1 settled up 1.15 percent at $46.59 a barrel, while Brent LCOc1 added 1.35 percent to $49.46. [O/R]
The Canadian dollar gained against most key currencies, although it was outperformed by fellow commodity-linked currencies the Australian and New Zealand dollars.
The yield curve on Canadian government bonds flattened, with the two-year CA2YT=RR half a Canadian cent lower to yield 0.578 percent and the benchmark 10-year CA10YT=RR up a cent to yield 1.544 percent. The 4-year, 5-year, and 7-year issues rose.
The Canada-U.S. two-year bond spread was -15.8 basis points, while the 10-year spread was -60.2 basis points.
Reporting by Alastair Sharp; Editing by Lisa Von Ahn and Tom Brown