CANADA FX DEBT-C$ firms in thin trading, flash surge in euro dominates
* Canadian dollar at C$1.3445, or 74.38 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, Dec 30 (Reuters) - The Canadian dollar strengthened on Friday against a weaker greenback, which softened against a basket of major currencies in thin holiday market trading. Overseas, a short-lived surge in the euro dominated foreign exchange markets, with a lack of liquidity and automated short-covering in the euro exacerbating moves, driving the U.S. dollar to its lowest since Dec. 8. At 10:25 a.m. ET (1525 GMT), the Canadian dollar was trading at C$1.3445 to the greenback, or 74.38 U.S. cents, stronger than the Bank of Canada's official close of C$1.3508, or 74.03 U.S. cents. "It's liquidity, or a lack thereof that plays a big part in any year-end trading volatility," said Jack Spitz, managing director of foreign exchange at National Bank Financial. "We do expect to see some U.S. dollar selling late morning and then liquidity will become the bigger factor, especially after Europe closes." The currency traded between C$1.3427 and C$1.3505 during the session, touching its strongest level since before Christmas. The price of oil, a key Canadian export, fell on Friday, but was still on track for the biggest annual gain since 2009 due to planned output cuts by major crude producers. U.S. crude prices were down 0.15 percent to $53.69 a barrel, while Brent crude lost 0.25 percent to $56.71. The Canadian dollar, which was outperforming most of its key currency counterparts, traded in line with market expectations for the end of the year. "Overall, the market is looking for U.S. dollar strength for the first half of 2017, followed by perhaps some Canadian dollar strength into the latter part of 2017," said Spitz, pointing to expectations that the Federal Reserve will likely hike interest rates in 2017, in contrast to expectations from the Bank of Canada and elsewhere. Canadian government bond prices were higher across the maturity curve, with the two-year price up 2 Canadian cents to yield 0.749 percent and the benchmark 10-year falling 9 Canadian cents to yield 1.728 percent. The Canada-U.S. two-year bond spread was -46.1 basis points, while the 10-year spread was -73.9 basis points. (Reporting by Solarina Ho; Editing by Meredith Mazzilli)
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