Canadian dollar strengthens ahead of NAFTA talks as wholesale trade rises

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday, gravitating toward the middle of this year's range ahead of the resumption of talks to renegotiate NAFTA and as investors weighed domestic data showing an increase in wholesale trade.

The value of Canadian wholesale trade rose for the second month in a row in November on broad gains across sectors, data from Statistics Canada showed. The 0.7 percent increase was shy of economists' forecasts for a 1 percent gain, while volumes rose 0.5 percent.

The sixth and penultimate round of talks on renegotiating the North American Free Trade Agreement among Canada, the United States and Mexico is scheduled to take place in Montreal from Tuesday to next Monday.

The future of NAFTA was the most significant downside risk the economy faced, the Bank of Canada said last week as it raised its benchmark interest rate, as expected, but tempered expectations for additional increases over the coming months.

"Everybody is waiting to see what happens with NAFTA and with inflation at the end of the week," said Alvise Marino, a foreign exchange strategist at Credit Suisse in New York.

Canada's annual inflation rate is expected to have dipped slightly in December but still remain near the Bank of Canada's 2 percent target. Analysts will watch the three measures of underlying core inflation to gauge how quickly the central bank may raise interest rates again.

At 4 p.m. (2100 GMT), the Canadian dollar was trading at C$1.2453 to the greenback, or 80.30 U.S. cents, up 0.3 percent.

The currency traded in a range of C$1.2435 to C$1.2520. Since the start of the year, the range has been C$1.2355 to C$1.2590.

Speculators have raised bullish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday.

The U.S. dollar <.DXY> dipped against a basket of major currencies, although some losses were pared after news of a deal to end a U.S. government shutdown.

Canadian government bond prices were little changed across the yield curve, with the 10-year rising 2 Canadian cents to yield 2.241 percent. The yield touched its highest intraday since September 2014 at 2.249 percent.

U.S. crude oil futures settled 0.4 percent higher at $63.62 a barrel. Oil is one of Canada's major exports.

(Reporting by Fergal Smith; Editing by Frances Kerry and Peter Cooney)

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