Canadian dollar posts eight-week high ahead of Fed rate decision

TORONTO (Reuters) - The Canadian dollar strengthened to an eight-week high against its U.S. counterpart on Wednesday as broader losses for the greenback ahead of a Federal Reserve interest rate decision eclipsed a dip in oil prices and mixed domestic data.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

The U.S. dollar .DXY lost ground against a basket of major currencies as investors braced for the first Fed rate increase in a year and weighed what the central bank may do in 2017.

The loonie has gained steadily in recent weeks on the back of higher prices for oil, a major Canadian export.

But oil pared some recent gains following a reported rise in U.S. crude inventories and as OPEC signaled a growing crude surplus next year unless production cuts are implemented.

U.S. crude CLc1 prices were down 1.57 percent at $52.15 a barrel.

At 9:26 a.m. EDT (1426 GMT), the Canadian dollar CAD=D4 was trading at C$1.3110 to the greenback, or 76.28 U.S. cents, stronger than Tuesday's close of C$1.3133, or 76.14 U.S. cents.

The currency’s weakest level of the session was C$1.3140, while it touched its strongest since Oct. 19 at C$1.3093.

Canadian household debt as a share of income hit another record in the third quarter as the pace of borrowing outstripped wage gains, data from Statistics Canada showed. The ratio of debt to disposable income rose to 166.9 percent from an adjusted 166.4 percent in the second quarter.

In separate data, Canadian home prices rose in November from a month earlier as prices continued to soar in Toronto, the Teranet-National Bank Composite House Price Index showed, while lending activity to small businesses in Canada declined in October.

Canadian government bond prices were higher across a flatter yield curve in sympathy with Treasuries. The two-year CA2YT=RR price rose 1.5 Canadian cents to yield 0.769 percent and the benchmark 10-year CA10YT=RR climbed 36 Canadian cents to yield 1.714 percent.

On Tuesday, the 10-year yield touched its highest since June 2015 at 1.794 percent.

Reporting by Fergal Smith; Editing by Meredith Mazzilli