October 28, 2015 / 7:50 PM / 2 years ago

C$ pares gains after Fed, still off three-week low on oil

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.Mark Blinch

TORONTO (Reuters) - The Canadian dollar ended stronger against its U.S. counterpart on Wednesday on a surge in crude oil prices, although gains were offset by the U.S. Federal Reserve's message that a December interest rate hike was still on the agenda.

The U.S. central bank held rates steady as expected but surprised investors with an overt reference to its December meeting.

"In this circumstance, with the Fed seemingly trying to get back in play, certainly you have to think in terms of the relative policy stances that the Fed is closer to normalizing interest rates compared to the Bank of Canada," said Mazen Issa, senior foreign exchange strategist at TD Securities.

The loonie, as the Canadian currency is colloquially known, weakened to above C$1.32 to the greenback after the news, from C$1.31 immediately before.

It ended the day at C$1.3192, or 75.80 U.S. cents,, stronger than Tuesday's official close of C$1.3266, or 75.38 U.S. cents.

The commodity-linked currency had gained ahead of the Fed as a bump in chronically weak oil prices provided support.

U.S. crude CLc1 prices settled up 6.3 percent at $45.94 a barrel, while Brent LCOc1 added 5.18 percent to $49.19. [O/R]

The Canadian dollar was outperforming all of its key currency counterparts.

Canadian government bond prices fell across the maturity curve, with the two-year CA2YT=RR price down 10 Canadian cents to yield 0.544 percent. The benchmark 10-year CA10YT=RR lost 58 Canadian cents to yield 1.482 percent.

The Canada-U.S. two-year bond spread was -16.3 basis points, and the 10-year spread was -61.8 basis points.

Editing by James Dalgleish and Tom Brown

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