CANADA FX DEBT-C$ boosted by oil gains as Fed caution weighs on US$
(Adds currency trader comment, updates prices to close) * Canadian dollar settles at C$1.3062, or 76.56 U.S. cents * Loonie hits strongest since Sept. 9 at C$1.3000 * Bond prices higher across flatter yield curve * 10-yr yield hits lowest since Sept. 9 at 1.092 pct By Alastair Sharp TORONTO, Sept 22 (Reuters) - The Canadian dollar hit a nearly two-week high against its U.S. counterpart before paring gains on Thursday, as oil prices rose and risk appetite picked up one day after the Federal Reserve decided to keep interest rates unchanged. Oil rose for a second day as a weaker U.S. dollar and surprisingly large drop in U.S. crude inventories emboldened investors ahead of next week's meeting of OPEC members and Russia to discuss supply. U.S. crude prices settled up 98 cents, or 2.16 percent, at $46.32 a barrel. The Fed on Wednesday signaled an increasingly cautious approach to future U.S. rate increases, sparking a rally in world shares and bonds. The Canadian dollar settled at C$1.3062 to the greenback, or 76.56 U.S. cents, stronger than Wednesday's close of C$1.3107, or 76.30 U.S. cents. The currency touched its strongest since Sept. 9 at C$1.3000. It was the fourth straight day the loonie gained ground against the greenback after having hit its lowest in seven weeks at C$1.3248 on Friday. But further gains for the Canadian currency may be hard to come by given a weak economic outlook highlighted by Bank of Canada Governor Stephen Poloz's comments earlier this week that domestic interest rates will stay low for longer. "The Fed is debating months about when they're going to hike, and we're looking at 2018 in our opinion," said Don Mikolich, executive director for foreign exchange sales at CIBC Capital Markets. Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year bond firmed 1 Canadian cent to yield 0.571 percent and the benchmark 10-year rose 43 Canadian cents to yield 1.101 percent. The 10-year yield touched its lowest since Sept. 9 at 1.097 percent, while the spread between the 2-year and 10-year yields narrowed by 4.2 basis points to 53 basis points, indicating outperformance for longer-dated maturities. Canadian inflation and retail sales data are due on Friday. The annual inflation rate is forecast to have edged up to 1.4 percent in August, while investors will be looking for signs that the federal government's new child benefit payments boosted retail sales. (Additional reporting by Fergal Smith; Editing by Bernadette Baum and Meredith Mazzilli)
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