Canadian dollar posts biggest weekly gain since June

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, but the currency held on to much of its weekly gain as oil prices rose and investors turned attention to domestic inflation data.

The loonie was trading 0.1% lower at 1.3515 to the greenback, or 73.99 U.S. cents, after trading in a range of 1.3495 to 1.3549. For the week, it was up 0.9%, its biggest weekly advance since June.

Much of the currency's weekly gain was down to selling of EUR-CAD, said Amo Sahota, director at Klarity FX in San Francisco.

The European Central Bank signaled on Thursday it was likely done with its interest rate hiking cycle, pressuring the euro.

The price of oil, one of Canada's major exports, settled 0.6% higher at $90.77 a barrel, notching a 10-month high, as supply tightness spearheaded by Saudi Arabian production cuts combined with optimism around Chinese demand to lift crude.

"I will be watching how U.S. vs CAD yield spreads fare after the CAD inflation (report) and FOMC (decision) next week," Sahota said.

Economists expect Canada's consumer price index report, due on Tuesday, to show inflation rising to an annual rate of 3.8% in August from 3.3% in July.

The Federal Open Market Committee is expected to leave the U.S. benchmark interest rate on hold in a 5.25%-5.50% range at the close of its Sept. 19-20 meeting on Wednesday.

Canada's 2-year yield has traded further below its U.S. equivalent in recent weeks to a gap of about 30 basis points, after briefly trading above the U.S. rate in June.

Canadian government bond yields rose across the curve on Friday, tracking moves in U.S. Treasuries. The 10-year was up 4.5 basis points at 3.738%.

(Reporting by Fergal Smith; Editing by Andrea Ricci)