CANADA FX DEBT-Loonie follows price of oil lower
* Canadian dollar at C$1.1628 or 85.99 U.S. cents * Bond prices mixed across the maturity curve By Leah Schnurr OTTAWA, Dec 22 (Reuters) - The Canadian dollar weakened against the greenback on Monday as it followed oil prices lower but it was not expected to fall out of its recent trading range in this holiday-shortened week. The Canadian dollar has been hit hard in recent months by the plunge in oil prices and is down 8.7 percent for the year, putting it on track for its weakest year since 2008. Oil, which is a major export for Canada, was down 84 cents at $56.29 a barrel after Saudi Arabia indicated it could increase output. "We're definitely seeing an ebb to the markets," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary. "We're likely to see U.S. dollar-Canadian dollar trade within a fairly tight range. I'd expect some volatility as volume starts to dry up, so you could have some knee jerk reactions in the markets." The Canadian dollar was at C$1.1628 to the greenback, or 85.99 U.S. cents, weaker than Friday's close of C$1.1608, or 86.15 U.S. cents. With just Canada's gross domestic product report for October on Tuesday the only major economic data on tap this week, the loonie is likely to be capped at the high C$1.15s, unless the GDP figures surprise the market, Smith said. Economic growth is forecast to have edged up 0.1 percent in October, slower than the 0.4 percent pace the month before. Analysts see the Canadian dollar's weakness continuing into 2015. Even if oil prices recover, the currency will be pressured by a hike in U.S. interest rates, which is expected to come next year and will most likely be implemented before any move on rates by the Bank of Canada. "With the Federal Reserve warning of a possible rate hike as early as April of next year, we're likely to see U.S. dollar-Canadian trend higher," Smith said. Canadian government bond prices were mixed across the maturity curve, with the two-year down 2 Canadian cents to yield 1.021 percent and the benchmark 10-year up 8 Canadian cents to yield 1.805 percent. (Editing by Peter Galloway)
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