CANADA FX DEBT-C$ strengthens as Fed doubts offset lower oil prices
* Canadian dollar at C$1.2915, or 77.43 U.S. cents * Bond prices slightly higher across flatter maturity curve TORONTO, Aug 23 (Reuters) - The risk-sensitive Canadian dollar strengthened against its U.S. counterpart on Tuesday as skepticism that the Federal Reserve will hike interest rates this year and gains in world shares offset a drop in oil prices. The U.S. dollar dipped against a basket of major currencies amid doubts Fed Chair Janet Yellen will be able to convince financial markets in a speech later this week that she can steer a divided U.S. central bank to raise interest rates at least once in 2016. World shares rose as data from the euro zone supported sentiment. But oil fell as signs of rising supply outweighed hopes that producing nations will agree steps to support prices. U.S. crude prices were down 1.41 percent to $46.74 a barrel. At 9:28 a.m. EDT (1328 GMT), the Canadian dollar was trading at C$1.2915 to the greenback, or 77.43 U.S. cents, stronger than Monday's close of C$1.2950, or 77.22 U.S. The currency's strongest level of the session was C$1.2885, while its weakest was C$1.2947. On Monday, the loonie touched its weakest in one week at C$1.2965. Gains for the Canadian dollar came after stronger-than-expected domestic wholesale trade data on Monday. Still, recent retail sales data disappointed and Canada's economy is expected to contract in the second quarter after a wildfire in Alberta cut oil production. Canadian government bond prices were slightly higher across the maturity curve, with the two-year bond up 0.5 Canadian cent to yield 0.549 percent and the benchmark 10-year rising 10 Canadian cents to yield 1.015 percent. The curve flattened, as the spread between the 2-year and 10-year yields narrowed by 0.7 of a basis point to 46.6 basis points, its narrowest since June 2008, indicating outperformance for longer-dated maturities. (Reporting by Fergal Smith; Editing by Nick Zieminski)
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