CANADA FX DEBT-C$ reaches one-week high as oil rises, Fed stands pat

Wed Sep 21, 2016 4:30pm EDT
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(Adds analyst quotes, details on Fed decision, updates prices)
    * Canadian dollar ends at C$1.3107, or 76.30 U.S. cents
    * Loonie touches its strongest since Sept. 13 at $1.3101
    * Bond prices mixed across the yield curve

    By Fergal Smith
    TORONTO, Sept 21 (Reuters) - The Canadian dollar
strengthened to a one-week high against its U.S. counterpart on
Wednesday as oil rose and the Federal Reserve held off from
raising interest rates.
    The Fed strongly signaled it could still tighten monetary
policy by the end of this year as the U.S. labor market improved
further. But officials estimated a more gradual
pace of rate hikes as appropriate and cut their forecast for the
economy's longer-run growth.
    "The Fed has resigned itself to a sluggish new normal and
that's weighing on the U.S. dollar," said Adam Button, currency
analyst at ForexLive.    
    U.S. crude prices settled up $1.29 at $45.34 a barrel
after a third surprise weekly drop in U.S. crude stockpiles
helped assuage fears over a global oil glut. 
    "Oil inventories have really tightened up and that can get
the Canadian dollar off the floor in the short term," Button
    Oil is one of Canada's major exports.    
    A decision by the Bank of Japan to target the yield curve
added to support for risk-sensitive currencies such as the
Canadian dollar as global stocks rallied. 
    The Canadian dollar closed at C$1.3107 to the
greenback, or 76.30 U.S. cents, much stronger than Tuesday's
close of C$1.3209, or 75.71 U.S. cents.
    The currency's weakest level of the session was C$1.3240,
while it touched its strongest since Sept. 13 at $1.3101.
    Gains for the loonie came after a speech on Tuesday by Bank
of Canada Governor Stephen Poloz that suggested the central bank
will remain on the sidelines even as the economy struggles to
gain traction. 
    In domestic data, the value of Canadian wholesale trade rose
in July for the fourth consecutive month, posting a 0.3 percent
gain on strength in the motor vehicle and parts subsector.
    Still, the Organisation for Economic Cooperation and
Development has cut its 2016 growth forecast for Canada to just
1.2 percent, while it warned that global economic growth will
flounder this year and next at rates not seen since the
financial crisis. 
    Canadian government bond prices were mixed across the yield
curve, with the two-year bond down 1 Canadian cent to
yield 0.576 percent and the benchmark 10-year rising
13 Canadian cents to yield 1.149 percent.
    Canada's trade minister and the EU trade chief sought to
overcome the doubts of Austria and other EU members over a
planned EU-Canada free trade deal, with a declaration spelling
out the limits of the contentious pact. 

 (Reporting by Fergal Smith; Editing by Paul Simao and James