December 1, 2016 / 2:47 PM / 10 months ago

CANADA FX DEBT-C$ strengthens as oil extends rally on OPEC deal

* Canadian dollar at C$1.3366, or 74.82 U.S. cents
    * Bond prices lower across a steeper yield curve
    * 10-year yield touches its highest in nearly 1 year

    TORONTO, Dec 1 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Thursday as oil extended its
rally after major petroleum producers agreed to cut output for
the first time in eight years.
    The Organization of the Petroleum Exporting Countries
reached the agreement on Wednesday after de-facto leader Saudi
Arabia accepted "a big hit" and dropped a demand that archrival
Iran also slash production. 
    U.S. crude prices were up 2.99 percent at $50.92 a
barrel. Oil is one of Canada's major exports.
    Gains for the loonie also came after data on Wednesday
showed that the economy accelerated in the third quarter at its
fastest pace in more than two years as it benefited from a
rebound in oil exports, cementing expectations that the Bank of
Canada will keep interest rates steady next week. 
    Still, foreign exchange strategists forecast that the
Canadian dollar will extend recent losses against its U.S.
counterpart over the coming months as expected monetary policy
divergence with the United States overshadows higher oil prices,
a Reuters poll found. 
    At 9:19 a.m. EST (1419 GMT), the Canadian dollar 
was trading at C$1.3366 to the greenback, or 74.82 U.S. cents,
stronger than Wednesday's close of C$1.3429, or 74.47 U.S.
cents.
    The currency's weakest level of the session was C$1.3439,
while its strongest was C$1.3362. On Wednesday, the loonie
touched its strongest in three weeks at C$1.3357.
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries as higher oil
prices raised inflation expectations.
    The two-year bond fell 4.5 Canadian cents in
price to yield 0.728 percent, and the benchmark 10-year
 declined 53 Canadian cents to yield 1.645 percent. 
    Earlier in the session, the 10-year yield touched its
highest since Dec. 4, 2015 at 1.655 percent.
    Canada's employment report is due on Friday. The economy is
expected to have shed 20,000 jobs in November after two months
of strong gains. 

 (Reporting by Fergal Smith Editing by W Simon)

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