CANADA FX DEBT-Canadian dollar edges lower as political risk lingers

By Fergal Smith

TORONTO, Dec 24 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday, but the move was modest ahead of the Christmas Day holiday and as investors awaited clarity on the position of Canadian Prime Minister Justin Trudeau.

The loonie CAD= was trading 0.1% lower at 1.4380 to the U.S. dollar, or 69.54 U.S. cents, after moving in a range of 1.4364 to 1.4419.

Last Thursday, the currency touched its weakest intraday level since March 2020 at 1.4467, weighed by the threat of U.S. trade tariffs, a more hawkish Federal Reserve and domestic political uncertainty.

"Narrow range trading should persist over the holiday break, with no major data reports due until the New Year," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

"Developments on the domestic political front could add to volatility, however, and the uncertainty over the position of PM Trudeau and his minority government is enough to keep the CAD tone on the defensive."

Trudeau, whose party looks set to lose power early next year, is under increasing pressure from his own legislators to step down and let someone else take over.

The U.S. dollar .DXY rose against a basket of major currencies, maintaining its recent dominance as investors considered the prospect of higher-for-longer U.S. interest rates.

The price of oil, one of Canada's major exports, reversed the prior session's losses. U.S. crude oil futures CLc1 were up 1.3% at $70.17 a barrel.

Canadian bond yields moved higher across a steeper curve.

The 10-year CA10YT=RR was up 2.6 basis points at 3.317%, while the gap between it and the 2-year rate widened by 1.8 basis points to 27.5 basis points, the widest spread since May 2022.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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