CANADA FX DEBT-Canadian dollar posts third straight weekly gain on monetary policy divergence

By Fergal Smith

TORONTO, Dec 12 (Reuters) - The Canadian dollar held on to its weekly advance against its U.S. counterpart on Friday as investors bet that the Bank of Canada and the Federal Reserve would move in different directions next year in setting monetary policy.

The loonie CAD= was trading nearly unchanged at 1.3765 per U.S. dollar, or 72.65 U.S. cents, after touching its strongest intraday level since September 17 at 1.3751. For the week, the currency was up 0.4%, its third straight weekly gain, as the Bank of Canada left its benchmark interest rate on hold at a three-year low of 2.25% and the Federal Reserve extended its easing campaign.

"The market is looking at divergence in monetary policy," said Adam Button, chief currency analyst at investingLive. "Months of strong economic data finally convinced the market that the Bank (of Canada) is done cutting rates and now we're starting to hear talk about rate hikes in the second half of 2026."

Investors have fully discounted a BoC rate hike next year while they are betting on roughly 50 basis points of additional easing by the Fed. 0#CADIRPR0#USDIRPR

"Canada faced some big challenges in the last year and the economy has held up better than almost anyone thought," Button said.

Canadian wholesale trade grew by 0.1% in October from September on higher sales in the motor vehicle and motor vehicle parts and accessories subsector. Analysts had forecast a decline of 0.1%.

Separate data showed October building permits climbing 14.9% and capacity utilization increasing to 78.5% in the third quarter.

The price of oil CLc1, one of Canada's major exports, settled 0.3% lower at $57.38 a barrel as investors focused on a supply glut and potential Russia-Ukraine peace deal.

Canadian bond yields were mixed across a steeper curve, with the 10-year CA10YT=RR up 1.6 basis points at 3.453%.