December 29, 2017 / 7:07 PM / 3 years ago

CANADA FX DEBT-C$ adds to 2-month high, climbs more than 7 pct in 2017

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background; updates prices)
    * Canadian dollar at C$1.2542, or 79.73 U.S. cents
    * Loonie touches its strongest since Oct. 20 at C$1.2515
    * 2017 gain for the currency is biggest in eight years
    * Bond prices mixed across the yield curve

    By Fergal Smith
    TORONTO, Dec 29 (Reuters) - The Canadian dollar strengthened
to a two-month high against its U.S. counterpart on Friday, as
the greenback broadly fell and oil prices rose, with the loonie
on track to post its biggest yearly advance since 2009.
    At 1:36 p.m. ET (1836 GMT), the Canadian dollar          was
trading at C$1.2542 to the greenback, or 79.73 U.S. cents, up
0.2 percent.
    The currency broke out on Thursday from a range roughly
between 1.26 and 1.29 over the past two months. On Friday, it
touched its strongest since Oct. 20 at C$1.2515.    
    "The U.S. dollar has been down for several sessions now and
combined with oil prices at $60 ... it has definitely pushed
USD-CAD down to levels that are on the low end of where we think
we'll see it go," said Don Mikolich, executive director, foreign
exchange sales at CIBC Capital Markets.
    The loonie has climbed 7.3 percent in 2017, its second
straight year of gains as Canada's economy recovered following a
plunge in oil prices.
    U.S. oil prices        have rebounded to reach their highest
since mid-2015. They were up 0.8 percent at $60.33 a barrel on
Friday as an unexpected fall in American output and a decline in
commercial crude inventories stoked buying.             
    The U.S. dollar        slipped to its lowest in more than
three months against a basket of major currencies.             
    Domestic data before the Christmas break, which showed an
acceleration in inflation and strength in wholesale trade and
retail sales, has helped underpin the loonie by increasing
prospects of further interest rate hikes from the Bank of
    Money markets expect Canada's central bank to raise rates
three times in 2018, which is more than is expected from the
U.S. Federal Reserve.                     
    "If it wasn't for NAFTA and some other shadows ... one could
become a little bit more bullish on the Canadian dollar,"
Mikolich said.
    U.S. President Donald Trump has threatened to withdraw from
the North American Free Trade Agreement with Canada and Mexico
if he cannot rework it in favor of the United States. Officials
from the three countries will meet in Montreal Jan. 23-28 for
talks on thorny subjects such as autos, dispute settlement and
an expiry clause.
    Canadian government bond prices were mixed across the yield
curve, with the two-year            up 2 Canadian cents to yield
1.685 percent and the 10-year             falling 9 Canadian
cents to yield 2.042 percent.

 (Reporting by Fergal Smith
Editing by Chizu Nomiyama)
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