CANADA FX DEBT-C$ posts biggest weekly decline since August on risk aversion

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(Adds details on activity; updates prices) * Canadian dollar falls 0.4% against greenback * Touches its weakest level since Jan. 6 at 1.2796 * Price of U.S. oil settles 0.2% higher * Canadian bond yields ease across the curve By Fergal Smith TORONTO, Jan 28 (Reuters) - The Canadian dollar weakened to its lowest level in more than three weeks against its U.S. counterpart on Friday as recent volatility in global financial markets offset higher oil prices. The loonie was trading 0.4% lower at 1.2794 to the greenback, or 78.16 U.S. cents, after touching its weakest level since Jan. 6 at 1.2796. For the week, the currency was down 1.7%, its biggest weekly decline since August 2021. "Near-term risks are tilting a bit lower for the currency amid soft risk appetite and a long wait for the March BoC decision," strategists at Scotiabank, including Shaun Osborne, said in a note. Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to investor sentiment. Wall Street's main indexes turned higher on Friday, at the end of a week marked by wild gyrations on worries about aggressive rate hikes by the Federal Reserve and rising tensions between Western powers and Russia. The Bank of Canada surprised some investors on Wednesday by choosing not to hike its benchmark interest rate, which sits at a record low of 0.25%. Its next policy decision is due on March 2. With the Fed turning more hawkish, the gap between Canada's 2-year bond yield and its U.S. equivalent fell on Friday to its lowest level since April 2021 at about 7 basis points in favor of the Canadian bond. Oil prices notched their highest levels in over seven years as ongoing global political turmoil fanned concerns over tight supply. U.S. crude prices settled 0.2% higher at $86.82 a barrel. Data showed Canada's budget deficit shrinking in the first eight months of fiscal 2021/22. Canadian government bond yields eased across the curve, with the 10-year down 2.6 basis points at 1.751%. (Reporting by Fergal Smith Editing by Paul Simao and Richard Chang)

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