CANADA FX DEBT-C$ pares recent gains ahead of Bank of Canada rate decision
* Canadian dollar at C$1.3111, or 76.27 U.S. cents * Bond prices lower across a steeper yield curve TORONTO, Jan 18 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday, paring some recent gains ahead of a Bank of Canada interest rate decision as oil fell and the greenback rebounded against a basket of major currencies. The U.S. dollar recovered some ground after unease over how U.S. policy will develop under Donald Trump's presidency drove the currency to its weakest since early December. Data showing that U.S. inflation pressures could be building helped boost the greenback. Prices of oil, one of Canada's major exports, fell on expectations that U.S. producers would boost output, just as OPEC signaled that a global supply-reduction deal will shrink the oil glut this year. U.S. crude prices were down 1.60 percent at $51.64 a barrel. At 8:55 a.m. ET (1355 GMT), the Canadian dollar was trading at C$1.3111 to the greenback, or 76.27 U.S. cents, weaker than Tuesday's close of C$1.3058, or 76.58 U.S. cents. The currency's strongest level of the session was C$1.3040, while its weakest was C$1.3121. The loonie reached on Tuesday a nearly three-month high at C$1.3019, helped by recent data that showed a surge in jobs in December and the first trade surplus in more than two years in November, while a Bank of Canada survey last week pointed to improving business conditions. The Bank of Canada is widely expected to hold interest rates at 0.50 percent but investors will parse the central bank's monetary policy report for any insight as to what impact the economic policies of Trump could have on Canada. The rate decision and monetary policy report are due at 10:00 a.m. ET (1500 GMT). Nearly half of economists polled recently have pared back their Canadian growth forecasts, with the possibility that Trump will follow through on protectionist rhetoric clouding the outlook. Trump's nominee for commerce secretary has indicated that a formal letter to start negotiations on NAFTA will be sent to Canada and Mexico within days of Trump's inauguration, the Globe and Mail reported. Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year bond fell 2 Canadian cents to yield 0.788 percent and the 10-year declined 27 Canadian cents to yield 1.7 percent. The curve steepened, as the spread between the 2-year and 10-year yields widened by 2.2 basis points to 91.2 basis points, indicating underperformance for longer-dated maturities. (Reporting by Fergal Smith; Editing by Nick Zieminski)
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