CANADA FX DEBT-Canadian dollar edges lower against dominant greenback

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Canadian dollar falls 0.2% against the greenback

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Canada factory PMI rises to 22-month high

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Price of U.S. oil increases 2.2%

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Bond yields were little changed

By Fergal Smith

TORONTO, Jan 2 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday on the first trading day of 2025, but fared better than some other major currencies as oil prices rose and data showed Canada's factory sector expanding for a fourth straight month.

The loonie was trading 0.2% lower at 1.4410 to the U.S. dollar, or 69.40 U.S. cents, after moving in a range of 1.4370 to 1.4442. Last month, the currency touched a near five-year low at 1.4467.

"The USD is starting 2025 off as it appears likely to continue, at least for the next few months, as it stretches gains versus the majors," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

The U.S. dollar index jumped to a two-year high as the greenback posted gains of 1% or more against the euro and sterling on expectations that U.S. economic growth will beat peers.

The price of oil, one of Canada's major exports, was up 2.2% at $73.29 a barrel after a pledge by Chinese President Xi Jinping to promote economic growth.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to 52.2 in December from 52.0 in November, its highest level since February 2023 and the fourth straight month above the 50.0 no-change mark. It was helped by inventory accumulation by U.S. clients in anticipation of trade tariffs.

Still, the threat of U.S. tariffs and domestic political uncertainty has contributed to elevated levels of implied volatility in the Canadian dollar options market, Osborne said.

Implied volatility on an at-the-money options contract to buy or sell Canadian dollars against the U.S. dollar in three months was trading at roughly 7%, its highest level since April 2023. Investors and companies use options to hedge their currency exposure.

Canadian bond yields were little changed across the curve, with the 10-year at 3.235%. (Reporting by Fergal Smith; Editing by Richard Chang)