CANADA FX DEBT-Canadian dollar notches 2-1/2 month high as BoC moves to the sidelines

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Loonie gains 0.4% against the U.S. dollar

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Touches its strongest since September 22

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BoC leaves its policy rate on hold at 2.25%

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Canadian bond yields ease across the curve

(Updates market pricing)

By Fergal Smith

TORONTO, Dec 10 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as the Bank of Canada left interest rates on hold and the Federal Reserve's move to continue with its easing campaign weighed on the greenback.

The loonie was trading 0.4% higher at 1.3795 per U.S. dollar, or 72.49 U.S. cents, after touching its strongest intraday level since September 22 at 1.3785.

The U.S. dollar fell against a basket of major currencies after the Federal Reserve lowered interest rates in a widely expected move. Chicago Fed President Austan Goolsbee joined Kansas City Fed President Jeffrey Schmid in arguing the policy rate should be left unchanged.

"Markets had feared a more profound divergence would be on display, given that the October meeting minutes showed considerable differences of opinion among the various voting members," Karl Schamotta, chief market strategist at Corpay, said in a note.

The Bank of Canada moved to the sidelines as expected, after it cut its benchmark rate to a three-year low of 2.25% in October. Governor Tiff Macklem said the economy was proving resilient overall to the effect of U.S. trade measures but uncertainty remains high.

"For CAD to continue to outperform peers you would need some USMCA/trade uncertainty resolution which is harder to see in the imminent horizon," strategists at TD Securities, including Jayati Bharadwaj, said in a note.

Talks have broken down on a trade deal in key sectors between the U.S. and Canada, while the United States-Mexico-Canada Agreement, which has shielded much of Canada's exports from U.S. tariffs, is up for joint review in 2026.

U.S. Trade Representative Jamieson Greer said it made sense to discuss trade issues separately with Canada and Mexico given differences in trade relationships with both neighbors.

The price of oil, one of Canada's major exports, settled 0.4% higher at $58.46 a barrel after officials said the U.S. seized an oil tanker off the coast of Venezuela.

Canadian bond yields moved lower across the curve, tracking moves in U.S. Treasuries. The 10-year was down 4.4 basis points at 3.428%. (Reporting by Fergal Smith; Editing by Chris Reese and Diane Craft)