* Canadian dollar at C$1.3385, or 74.71 U.S. cents
* Bond prices mixed across the yield curve
TORONTO, Dec 16 The Canadian dollar weakened
against its U.S. counterpart on Friday, pressured by the recent
fall in Canada's bond yields below U.S. yields as investors
braced for divergence in monetary policy between the Federal
Reserve and the Bank of Canada.
Losses for the loonie came despite higher prices for oil,
one of Canada's major exports, as producers showed signs of
adhering to a global deal to reduce output.
U.S. crude prices were up 1.02 percent at $51.42 a
The U.S. dollar held onto gains since the Fed on
Wednesday increased interest rates and signaled increases would
follow at a faster pace next year.
Wider short-term spreads between Canada and the U.S. "remain
significant net drags" on the Canadian dollar, Shaun Osborne,
chief FX strategist at Scotiabank, said in a research note.
Canada's two-year yield has fallen 4 basis points further
below its U.S. equivalent this week to a spread of -43 basis
Strategists expect the spread to widen to as much as -80
basis points by the end of 2017 as the Bank of Canada shows no
desire to follow Fed rate increases.
At 9:30 a.m. EST (1430 GMT), the Canadian dollar
was trading at C$1.3385 to the greenback, or 74.71 U.S. cents,
weaker than Thursday's close of C$1.3347, or 74.92 U.S. cents.
The currency's strongest level of the session was C$1.3320,
while its weakest was C$1.3391.
On Thursday, the loonie touched its weakest level in two
weeks at C$1.3417.
Foreign investors bought a net C$15.75 billion in Canadian
securities in October, mainly in corporate debt securities, up
from C$11.79 billion in September, Statistics Canada said.
Canadian government bond prices were mixed across the yield
curve. The two-year was flat to yield 0.825 percent
and the benchmark 10-year dipped 2 Canadian cents to
yield 1.835 percent.
The 10-year yield on Thursday touched its highest level
since June 2015 at 1.859 percent.
(Reporting by Fergal Smith; Editing by Paul Simao)