* C$ touches high of 98.13 U.S. cents
* Bonds follow U.S. Treasuries higher
By Jennifer Kwan
TORONTO, Sept 22 (Reuters) - Canada's dollar touched its highest level in just over six weeks against the U.S. currency on Wednesday as the greenback slid after the Federal Reserve raised expectations of more monetary easing.
The Fed expressed greater concern on Tuesday about sluggish U.S. growth and low levels of inflation in a statement that many took as opening the door wider to pumping more dollars into the economy. [ID:nTRU002490] [ID:nN20109053]
"I think they've (Fed) made it clear to the street they have complete vigilance for deflation as opposed to inflation," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
In reaction, Askari said "you saw every currency in the world rising against the U.S. dollar" as quantitative easing essentially involves buying U.S. Treasuries or bonds and flooding the market with greenbacks.
"The other simple way of looking at it is yields will go down and people don't want to hold U.S. dollars that are a lower-yielding product than other currencies out there," said Askari.
The Canadian currency CAD=D3 strengthened to C$1.0191 to the U.S. dollar, or 98.13 U.S. cents, its strongest level since Aug. 6. But by 8:00 a.m. (1200 GMT), it retreated to C$1.0225 to the U.S. dollar, or 97.80 U.S. cents.
Askari said the market will be looking for support and resistance at C$1.0185 to the U.S. dollar and C$1.0270.
The Canadian currency ended Tuesday's session at C$1.0268 to the U.S. dollar, or 97.39 U.S. cents.
The Fed move followed data that showed Canada's annual inflation rate slowed in August, suggesting the Bank of Canada may suspend its rate-hiking campaign. [ID:nN21500487] BOCWATCH
Government bonds followed U.S. Treasuries, which rose after the Fed statement was seen as signaling the U.S. central bank was open to pumping more money into the economy. [US/]
The two-year bond was up 8 Canadian cents to yield 1.418 percent, while the 10-year bond gained 46 Canadian cents to yield 2.844 percent. (Reporting by Jennifer Kwan; Editing by Chizu Nomiyama)
