CANADA FX DEBT-Canadian dollar retreats from 4-month high ahead of CPI data

*

Canadian dollar weakens 0.1% against the greenback

*

Trades in a range of 1.3351 to 1.3409

*

Price of U.S. oil settles 1.5% higher

*

10-year yield rises 6.5 basis points

By Fergal Smith

TORONTO, Dec 18 (Reuters) – The Canadian dollar edged lower against its U.S. counterpart on Monday but was holding near its strongest level in four months as oil prices rose and investors awaited domestic inflation data.

The loonie was trading 0.1% lower at 1.3390 to the greenback, or 74.68 U.S. cents after moving in a range of 1.3351 to 1.3409.

On Friday, it touched its strongest level since Aug. 4 at 1.3347 as the Federal Reserve’s move to signal the possibility of interest rate cuts next year pressured the U.S. dollar .

Increased risk appetite in anticipation of central bank interest rate cuts in 2024 has helped underpin the Canadian dollar, Darren Richardson, chief operating officer at Richardson International Currency Exchange Inc, said in a note.

Economists expect the Canadian consumer price index report, due on Tuesday, to show inflation slowing to an annual rate of 2.9% in November from 3.1% in October.

“A higher inflation number would force the Bank of Canada to maintain current interest rate levels for a prolonged time frame and strengthen the loonie,” Richardson said.

The Canadian central bank has left the door open to further tightening even as it expresses increasing optimism about returning inflation to its 2% target.

The price of oil, one of Canada’s major exports, settled 1.5% higher at $72.47 a barrel as attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea disrupted maritime trade and pushed up costs of supply.

Canadian government bond yields rose across the curve. The 10-year was up 6.5 basis points at 3.187% after touching on Friday a seven-month low at 3.102%.

The gap between the Canadian and U.S. 10-year yields narrowed by 4.2 basis points to a level that was 76.4 basis points in favor of the U.S. note. (Reporting by Fergal Smith; Editing by Aurora Ellis)