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TORONTO, Jan 25 The Canadian dollar weakened

against its U.S. counterpart on Monday, retreating from last

week's rally as oil prices renewed their selloff and market

watchers expected wide swings in the currency to continue.

    Crude, a major Canadian export, fell as much as 5 percent

Iraq announced record-high oil production that will feed into an

already oversupplied market. Oil's loss wiped out much of the

gain on Friday from one of the biggest-ever daily rallies.

    The Canadian dollar ended the session changing

hands at C$1.4270 to the greenback, or 70.08 U.S. cents, weaker

than Friday's official close of C$1.4150, or 70.67 U.S. cents.

    The currency rallied 3 percent last week after the Bank of

Canada surprised many traders by leaving its policy rate on

hold.

    David Bradley, director of foreign exchange trading at

Scotiabank, said the Canadian currency could range between

C$1.4050 and C$1.4550 as volatility continues.  

    "I don't know if we're necessarily ready to be searching for

a range," Bradley said. "Obviously we've had a large move up

from Jan. 1 until the Bank of Canada decided not to cut rates

and the move down to below C$1.41 was even more rapid than the

move up."

    The currency's strongest level of the session was C$1.4127,

while its weakest level was C$1.4272.

    Bearish bets on the Canadian dollar rose in the week ended

Jan. 19. Net short Canadian dollar positions increased to 66,386

contracts from 59,214 in the prior week, according to data from

the Commodity Futures Trading Commission released on Friday.

  

    Attention has shifted to the U.S. Federal Reserve interest

rate announcement on Wednesday, as well as the conclusion of the

Bank of Japan policy meeting on Friday.

    Canadian government bond prices were higher across the

maturity curve, with the two-year price up 8 Canadian

cents to yield 0.416 percent and the benchmark 10-year

 rising 61 Canadian cents to yield 1.251 percent.

    The curve flattened in sympathy with U.S. Treasuries, as the

spread between the 2-year and 10-year yields narrowed by 2.6

basis points to 83.5 basis points, indicating outperformance for

longer-dated maturities.

    The Canada-U.S. 10-year bond spread was 2.7 basis points

more negative at -75.7 basis points, trimming underperformance

last week by Canadian government bonds.

    Canadian GDP for November is awaited on Friday, expected to

reveal a rebound in growth after contraction in October.

SOURCE: REUTERS

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