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imageTORONTO: The commodity-linked Canadian dollar weakened against its firmer US counterpart on Wednesday as oil fell, although losses for the currency were restrained as investors awaited clues this week on the US interest rate outlook.

Oil fell after an unexpectedly large inventory build in the world's biggest oil consumer renewed oversupply concerns. US crude oil futures settled $1.33 lower at $46.77 a barrel.

The US dollar rose against a basket of major currencies ahead of a gathering of global central bankers later this week in Jackson Hole, Wyoming, where the focus will be on Friday's keynote speech by Federal Reserve Chair Janet Yellen.

"The market is really sitting tight waiting for Friday (when Yellen speaks)," said Don Mikolich, executive director, foreign exchange sales at CIBC Capital Markets, who noted that the loonie lost only a modest amount of ground in the face of losses for oil and a firmer US dollar.

"Canada still stands out as a positive performer when you look at the alternatives," Mikolich added.

Many major central banks have cut their policy interest rates to near or below zero.

Better-than-expected earnings from domestic banks over the past two days have been a "positive sign" for foreign investors that are searching for yield, said Mikolich.

The Canadian dollar ended at C$1.2930 to the greenback, or 77.34 US cents, slightly weaker than Tuesday's close of C$1.2910, or 77.46 US cents.

The currency's strongest level of the session was C$1.2902, while its weakest was C$1.2958.

On Monday, the loonie touched its weakest in one week at C$1.2965.

Canadian government bond prices were lower across the maturity curve, with the two-year bond down 3 Canadian cents to yield 0.573 percent and the benchmark 10-year falling 14 Canadian cents to yield 1.038 percent.

The curve flattened very slightly as the spread between the 2-year and 10-year yields narrowed by 0.1 of a basis point to 46.5 basis points.

It was the narrowest spread since June 2008 as longer-dated maturities extended recent outperformance.

Copyright Reuters, 2016

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