CANADA FX DEBT-Canadian dollar rebounds on Fed independence worries

By Fergal Smith

TORONTO, Jan 12 (Reuters) - The Canadian dollar clawed back some recent declines against its U.S. counterpart on Monday as increased concerns about the independence of the Federal Reserve weighed on the greenback.

The loonie CAD= was trading 0.3% higher at 1.3875 per U.S. dollar, or 72.07 U.S. cents, after trading in a range of 1.3868 to 1.3917. On Friday, the currency touched a five-week low at 1.3920.

The U.S. dollar .DXY fell against a basket of major currencies after the U.S. Department of Justice threatened to indict Federal Reserve Chair Jerome Powell over comments to Congress about a building renovation project. Powell called the action a "pretext" to gain more influence over interest rates.

"I think the Canadian dollar’s rebound has more to do with U.S. political risk than anything happening domestically," said Tony Valente, senior FX dealer at AscendantFX.

"Headlines around a potential Trump administration criminal investigation into the Fed Chair have unsettled markets and raised concerns about central bank independence, which has weighed on the USD. The loonie is really benefiting from USD weakness rather than a shift in Canadian fundamentals."

Data on Friday showed that the Canadian economy added jobs at a slower pace in December, while investors have worried that a boost in Venezuelan oil exports to the United States could hurt Canadian companies that sell a similar heavy oil.

The price of oil CLc1 was trading 0.2% higher at $59.25 a barrel as investors weighed anti-government demonstrations in major oil producer Iran.

Canadian Prime Minister Mark Carney has vowed to diversify Canada's exports away from the United States. He is set to visit China this week.

Canadian bond yields edged higher across the curve, with the 10-year CA10YT=RR up 0.7 basis points at 3.400%.