CANADA FX DEBT-C$ rallies on NAFTA optimism, higher oil prices

    * Canadian dollar at C$1.2986, or 77.01 U.S. cents
    * Loonie touches strongest since Thurs at C$1.2976
    * Oil prices climb 0.9 percent     
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, March 21 (Reuters) - The Canadian dollar
strengthened to a six-day high against its U.S. counterpart on
Wednesday, buoyed by higher oil prices and a report that the
U.S. had dropped one of its contentious demands in the
renegotiation of the NAFTA trade deal.
    President Donald Trump's administration has dropped a demand
that all vehicles made in Canada and Mexico for export to the
United States contain at least 50 percent U.S. content, The
Globe and Mail reported.             
    "It does remove some source of uncertainty," said Alvise
Marino, FX strategist at Credit Suisse in New York. "It's still
too early for the BoC to meaningfully change its view on this
    The Bank of Canada has been worrying that uncertainty over
the future of the North American Free Trade Agreement may weigh
on the economy. Comments last week from Governor Stephen Poloz
have reinforced expectations the central bank will take its time
raising rates after hiking them three times since last July.
    The price of oil, one of Canada's major exports, notched its
highest in six weeks after a surprise decline in U.S.
inventories and as concern persist over possible disruption to
Middle East supply.             
    U.S. crude        prices were up 0.9 percent at $64.09 a
    At 8:58 a.m. ET (1258 GMT), the Canadian dollar          was
trading 0.7 percent higher at C$1.2986 to the greenback, or
77.01 U.S. cents. It touched its strongest since Thursday at
    Gains for the loonie came even as investors braced for a
potential interest rate hike from the Federal Reserve.
    Ahead of a U.S. rate decision, the U.S. dollar        fell
against a basket of major currencies, pressured by a report in
the Wall Street Journal that China was planning counter measures
against U.S. trade tariffs.             
    Canadian government bond prices were lower across the yield
curve, with the two-year            price down 6 Canadian cents
to yield 1.859 percent and the 10-year             falling 23
Canadian cents to yield 2.242 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 1.8 basis points to a spread of -49.4
basis points. On Friday, the spread touched its widest since
June 9 at -53.2 basis points.
    Bank of Canada Senior Deputy Governor Carolyn Wilkins will
deliver a speech on Thursday, while domestic inflation data for
February is due on Friday.   

 (Reporting by Fergal Smith; Editing by Bernadette Baum)