* Canadian dollar gains 0.2% against the greenback
* For the week, the loonie was down 0.2%
* Price of U.S. oil settles 0.8% higher
* Canadian bond yields rise across the curve
TORONTO, Jan 26 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday but still posted a weekly decline, with investors eyeing the Bank of Canada's recent shift in guidance to trigger a period of greater volatility for the currency.
The loonie was trading 0.2% higher at 1.3450 to the greenback, or 74.35 U.S. cents, after trading in a range of 1.3415 to 1.3483.
For the week, it was down 0.2% as the BoC said its focus is shifting to when to cut borrowing costs rather than whether to hike again.
"We can't look past what we heard from the Bank of Canada this week," said Bipan Rai, global head of FX strategy at CIBC Capital Markets.
"I do think the pivot they made, or at least the signal being sent now that rates are restrictive enough should at the margin introduce a little bit more two-way risk to the way the Canadian dollar trades over the next couple of months, not least as we look forward to the Federal Reserve next week."
The market's pricing of expected volatility for the Canadian dollar has sunk to depressed levels, with three-month implied volatility trading at an annualized rate of about 5.25%, nearly its lowest level since March 2020.
The Federal Reserve is due to make an interest rate decision on Wednesday. U.S. prices rose marginally in December, bolstering expectations the Fed will start cutting interest rates this year.
In domestic data, a preliminary estimate showed wholesale trade up 0.8% in December from November.
The price of oil, one of Canada's major exports, settled 0.8% higher at $78.01 a barrel, while Canadian bond yields were higher across the curve.
The 10-year rose as much as 6.9 basis points to touch its highest level since Dec. 1 at 3.546%. (Reporting by Fergal Smith; editing by Diane Craft)
