CANADA FX DEBT-Canadian dollar posts biggest decline among G10 currencies

By Fergal Smith

TORONTO, Jan 16 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday and bond yields eased, as investors braced for expected U.S. trade tariffs and the Bank of Canada said it would end its quantitative tightening program in the coming months.

The loonie CAD= was trading 0.4% lower at 1.4392 per U.S. dollar, or 69.48 U.S. cents, after trading in a range of 1.4323 to 1.44.

It was the weakest performer among the Group of 10 currencies. The Mexican peso MXN= posted an even sharper decline.

U.S. President-elect Donald Trump takes office on Monday and has threatened to impose a 25% tariff on imports from Canada as well as Mexico.

"There hasn't been a realization in markets that Bank of Canada pricing doesn't really incorporate much of a tariff premium yet," said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities.

"It's possible that with the inauguration in the United States drawing ever closer, markets are starting to price in maybe a little bit more of a risk that Canada has a negative economic event due to trade policy."

The Bank of Canada will cut interest rates by 25 basis points to 3.00% on Jan. 29, according to a Reuters poll of economists, but many were not confident about the outlook beyond that given uncertainty around tariffs.

Deputy Governor Toni Gravelle said that the BoC expects to announce the end of QT and the associated restart of its normal asset purchases in the first half of this year.

The price of oil, one of Canada's major exports, settled 1.7% lower at $78.68 a barrel on expectations that Yemen's Houthi militia will halt attacks on ships in the Red Sea.

Canadian bond yields tumbled for a second straight day, with the 10-year CA10YT=RR down 10.2 basis points at 3.317%.

(Reporting by Fergal Smith;
Editing by Sandra Maler)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))