December 5, 2016 / 9:52 PM / in 8 months

CANADA FX DEBT-C$ barely stronger as oil rally loses steam

(Adds broker comment, updates prices to close)
    * Canadian dollar settles at C$1.3276, or 75.28 U.S. cents
    * Bond prices lower across the yield curve

    By Alastair Sharp
    TORONTO, Dec 5 (Reuters) - The Canadian dollar strengthened
slightly against its U.S. counterpart on Monday, adding to sharp
gains from last week even as an oil price rally paused, with
domestic attention shifting to an interest rate decision by the
Bank of Canada.
    The currency hit its strongest level in more than six weeks
in afternoon trade before trimming gains into the close as
prices for oil, a major Canadian export, weakened.  
    "A lot of people are surprised that the Canadian dollar has
been as strong as it has been recently," said Steve Butler,
director of foreign exchange trading at Scotiabank. "Obviously
oil's made a good push higher through this $50 (a barrel) level
and that's probably helping." 
    U.S. crude futures strengthened on Monday before retreating
in post-settlement trade as the market lost confidence that OPEC
cuts would be sufficient to reduce oversupply given increased
U.S. drilling. 
    The loonie, as Canada's currency is colloquially known, is
expected to weaker over the coming months as likely monetary
policy divergence overshadows higher oil prices, a Reuters poll
found. 
    The Bank of Canada is widely expected to hold interest rates
at 0.50 percent on Wednesday, with investors focused on the
policy statement for any mention of how the U.S. election of
Donald Trump could impact the Canadian and U.S. economies.
    The currency settled at C$1.3276 to the greenback,
or 75.32 U.S. cents, slightly stronger than Friday's close of
C$1.3283, or 75.28 U.S. cents.
    The currency's weakest level of the session was C$1.3356,
while its touched its strongest since Oct. 21 at C$1.3236. 
    The U.S. dollar weakened against a basket of major
currencies as bets that a snap election in Italy would not be
triggered supported the euro. 
    The loonie advanced 1.8 percent last week, its biggest gain
in eight months, helped by stronger-than-expected domestic data
and by oil's surge following the OPEC deal to cut output.    
    The Liberal government's new mortgage rules are likely to
sober up Canada's housing market over the coming year, a Reuters
poll showed, but record-low borrowing costs should bolster
demand. 
    Canadian government bond prices were lower across the yield
curve, with the two-year down 1.5 Canadian cents to
yield 0.741 percent and the benchmark 10-year 
slipping 8 Canadian cents to yield 1.628 percent.
    On Thursday, the 10-year yield touched its highest in more
than one year at 1.712 percent.

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and Meredith Mazzilli)

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