November 25, 2016 / 3:17 PM / in 10 months

CANADA FX DEBT-C$ dips against weaker greenback as oil drops

* Canadian dollar at C$1.3499, or 74.08 U.S. cents
    * Bond prices higher across the maturity curve

    TORONTO, Nov 25 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Friday as a drop in oil
prices offset a pullback for the greenback against a basket of
major currencies.
    Modest losses for the loonie came as Canada's 10-year yield
fell 3.2 basis points below its U.S. equivalent to leave a
spread of -79.9 basis points. On Wednesday, the spread hit its
widest in 10 months at -81.9 basis points.
    A wider spread reduces investor incentive to buy
lower-yielding Canadian bonds, trimming demand for Canadian
dollars.    
    U.S. crude prices were down 1.27 percent at $47.35 a
barrel, pressured by uncertainty over whether OPEC will agree to
cut production at the group's meeting next week.
    Oil is one of Canada's major exports.
    At 9:49 a.m. EDT (1449 GMT), the Canadian dollar 
was trading at C$1.3499 to the greenback, or 74.08 U.S. cents,
slightly weaker than Thursday's close of C$1.3491, or 74.12 U.S.
cents.
    The currency's strongest level of the session was C$1.3455,
while its weakest was C$1.3515. The loonie last week hit its
weakest in eight months at C$1.3589.
    The U.S. dollar on Friday pared some recent gains.
Still, expectations of rises in U.S. inflation and interest
rates have driven the greenback to a more than 6 percent gain
against a basket of major currencies over October and November.
 
    The market is underestimating the prospect of further
interest rate cuts from the Bank of Canada, some economists
said, as an uncertain outlook for the NAFTA trade accord
following Donald Trump's U.S. presidential election win risks
derailing an expected pick-up in Canada's business spending.
 
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year up 2.5 Canadian cents
to yield 0.673 percent and the benchmark 10-year 
rising 25 Canadian cents to yield 1.559 percent.
    On Wednesday, the 10-year yield touched its highest intraday
level since December at 1.614 percent.
    Bond yields had been rising since the U.S. election as
investors bet President-elect Trump will pursue
inflation-boosting policies.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)

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