December 13, 2017 / 9:35 PM / 6 months ago

CANADA FX DEBT-C$ rallies as investors cheer Fed growth outlook

 (Adds investor quotes, details throughout; updates prices)
    * Canadian dollar at C$1.2822, or 77.99 U.S. cents
    * Bond prices rise across the yield curve
    * Canada-U.S. 10-year spread narrows by 3.5 basis points
    * U.S. crude        prices fall nearly 1 percent

    By Fergal Smith
    TORONTO, Dec 13 (Reuters) - The Canadian dollar rallied
against its broadly weaker U.S. counterpart on Wednesday after
the Federal Reserve raised interest rates, as expected, with
investors betting that Canada will benefit from an improved
outlook for the U.S. economy.    
    Fed officials acknowledged in their latest forecasts that
the U.S. economy had gained steam in 2017 by raising their
economic growth forecasts and lowering the expected unemployment
rate for the coming years.                     
    "With the rate hike, we see the flowers growing and the sun
shining in the United States economy," said Kash Pashootan,
chief executive and chief investment officer at First Avenue
Investment Counsel Inc. "A strong U.S. economy spills over into
Canada and is positive."
    Canada sends about 75 percent of its exports to the United
States.
    The U.S. dollar        lost ground against a basket of major
currencies after the Fed left its interest rate outlook for the
coming years unchanged.                 
    Data showing a subdued rise in U.S. core inflation also
weighed on the greenback.    
    At 4 p.m. ET (2100 GMT), the Canadian dollar          was
trading at C$1.2822 to the greenback, or 77.99 U.S. cents, up
0.3 percent.
    The currency's weakest level of the session was C$1.2882,
while it touched its strongest since Thursday at C$1.2792.
    The loonie gained despite a drop in the price of oil, one of
Canada's major exports.
    U.S. crude futures        settled nearly 1 percent lower at
$56.60 a barrel as a larger-than-forecast rise in gasoline
inventories offset a slump in U.S. crude stockpiles.
                
    On Tuesday, the loonie touched its weakest since Dec. 1 at
C$1.2893. It had been pressured by the Bank of Canada's dovish
tone last week after it held its benchmark interest rate steady
at 1 percent.
    Bank of Canada Governor Stephen Poloz was due to discuss
three things that keep him awake at night in a speech on
Thursday.
    Data showed Canadian home prices fell again in November, the
third straight monthly decline and the largest drop for the
month outside of a recession.             
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year           
rose 3 Canadian cents to yield 1.504 percent and the 10-year
            gained 19 Canadian cents to yield 1.843 percent.
    The gap between the 10-year yield and its U.S. equivalent
narrowed by 3.5 basis points to a spread of -50.2 basis points.
    On Tuesday, the spread had touched its widest since July at
-53.7 basis points.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)
  
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