September 20, 2017 / 9:12 PM / 3 years ago

CANADA FX DEBT-C$ hits two-week low as Fed rate signal boosts greenback

 (Adds analyst quotes, details throughout; updates prices)
    * Canadian dollar at C$1.2329, or 81.11 U.S. cents
    * Loonie touches its weakest since Sept. 6 at C$1.2390
    * Bond prices decline across the yield curve
    * Oil prices climb 1.9 percent

    By Fergal Smith
    TORONTO, Sept 20 (Reuters) - The Canadian dollar weakened to
a two-week low on Wednesday against its U.S. counterpart,
reversing earlier gains, after the Federal Reserve signaled that
it expected to raise interest rates once more by year-end.
    The U.S. dollar        rallied against a basket of
currencies after the signal by the Fed, which also said it would
begin in October to reduce its roughly $4.2 trillion in holdings
of U.S. Treasury bonds and mortgage-backed securities.
    "I think the market believes more in another interest rate
hike (by the Fed) this December," said Hendrix Vachon, senior
economist at Desjardins. "If interest rates are increasing in
the U.S., it boosts the U.S. dollar against other currencies."
    The loonie lost ground despite a rally in oil, one of
Canada's major exports.
    U.S. crude        prices settled 1.9 percent higher at
$50.41 a barrel after the Iraqi oil minister said the
Organization of the Petroleum Exporting Countries and its
partners were considering extending or deepening output cuts.
    At 4 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2329 to the greenback, or 81.11 U.S. cents, down
0.3 percent.
    The currency's strongest level of the session was C$1.2198,
while it touched its weakest since Sept. 6 at C$1.2390.
    The loonie had lost ground on Monday after a Bank of Canada
policymaker said that the currency's strength would be a factor
in future rate decisions.
    The currency has gained nearly 9 percent this year against
the greenback, helped by two interest rate hikes by the Bank of
Canada over the past three months after the country's economic
growth accelerated.
    Canadian government bond prices fell across the yield curve
in sympathy with U.S. Treasuries. The two-year           
retreated 3.5 Canadian cents to yield 1.577 percent and the
10-year             declined 10 Canadian cents to yield 2.106
    The 10-year yield revisited Monday's nearly three-year high
of 2.119 percent.
    Still, global investors are warming up to Canadian bonds
after this year's rate hikes pushed yields to attractive levels
compared to those of other countries.                    
    Canada's August inflation report and retail sales data for
July are due on Friday.

 (Reporting by Fergal Smith; Editing by W Simon and Richard
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