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Loonie tests 9-month peak as lower oil offsets yield rise

* Canadian yields climb in step with U.S. counterparts * U.S. oil futures fall as supply concerns fade By Richard Leong July 16 (Reuters) – The Canadian dollar held steady against its U.S. counterpart on Tuesday, hovering near a nine-month high, as a drop in U.S. oil prices offset a rise in domestic bond yields that moved in step with higher U.S. yields. The loonie has gained sharply against the greenback in recent days as the Bank of Canada showed no signs it was prepared to lower interest rates anytime soon. Canadian policy-makers’ current stance come at a time as soft inflation data and global trade disputes have led other central banks including the Federal Reserve to signal they are ready to provide stimulus to counter an economic slowdown. “The currency has been on a tear the last few weeks. We are taking a breather,” said Mazen Issa, senior FX strategist at TD Securities in New York. At 12:49 p.m. (1649 GMT), the Canadian dollar was 0.06% lower at C$1.3058 per U.S. dollar, retreating from an earlier peak of C$1.3023. Last Friday, it strengthened to C$1.3077, its strongest level versus the U.S. dollar since Oct. 25. The yields on Canadian 10-year government debt were up 1.40 basis points at 1.606%, while 10-year Treasury yields rose 3.20 basis points at 2.124%. U.S. yields rose in reaction to news of a stronger-than-forecast 0.4% increase in U.S. retail sales last month. Traders thought the latest retail sales figures may put less pressure on the Federal Reserve to lower key lending rates by an aggressive half a point at its next policy meeting at the end of July, based on U.S. interest rates futures. They still expect the Fed to lower for a first time in a decade in two weeks, albeit by a more modest quarter-point decrease. In the meantime, analysts expect the BOC may not able to stay pat on rates for long if the Fed and other major central banks begin cutting rates and/or buying bonds. “The Bank of Canada can really afford to be patient, but the BOC is going to be pressured to cut rates like the other central banks,” said Alfonso Esparza, senior market analyst at Oanda in Toronto. The loonie’s initial gains faded with a pullback in U.S. crude prices as U.S. offshore crude output restarted after Hurricane Barry, and tensions between the U.S. and Iran were seen ratcheting down. U.S. crude oil futures were 0.42% lower at $59.33 a barrel. (Reporting by Richard Leong Editing by Susan Thomas)

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