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Bonds News

CANADA FX DEBT-Canadian dollar climbs to near one-week high on dovish Fed

 (Adds dealer quotes and details throughout, updates prices)
    * Canadian dollar was rises 0.1% against the greenback
    * Canada's annual inflation rate remains at 0.1% in August 
    * Price of U.S. oil settles 4.9% higher
    * Canadian bond yields rise across a steeper curve

    By Fergal Smith
    TORONTO, Sept 16 (Reuters) - The Canadian dollar rose to its
strongest level in nearly one week against the greenback on
Wednesday, before giving up some of its gains, bolstered by
higher oil prices and the Federal Reserve's promise to keep
interest rates pinned near zero.
    The Fed released new economic projections which showed
interest rates on hold through at least 2023, with inflation
never breaching 2% over that time.             
    "The message is dovish, dovish, dovish," said Michael
Goshko, corporate risk manager at Western Union Business
Solutions. "The Fed's emphasis on U.S. interest rates being low
for longer ... might just give the green light to Canadian
dollar bulls."        
     The price of oil, one of Canada's major exports, jumped
following a drawdown in U.S. crude and gasoline inventories and
as Hurricane Sally forced a swath of U.S. offshore production to
shut.
    U.S. crude oil futures        settled 4.9% higher at $40.16
a barrel, while the Canadian dollar was trading 0.1% higher at
1.3169 to the greenback, or 75.94 U.S. cents. The currency
touched its strongest intraday level since last Thursday at
1.3123.
    Canada's annual inflation rate remained at 0.1% in August as
rising food prices were offset by declining gasoline costs,
Statistics Canada said. Underlying inflation was firmer, with
the average of the Bank of Canada's three core measures of
inflation ticking up to 1.7% from 1.6%.             
    Setting a target for bond yields could help the Bank of
Canada reduce the amount of debt it buys to keep interest rates
low, checking a threat to market liquidity after the central
bank's share of bonds more than doubled this year, strategists
said.             
    Canadian government bond yields rose across much of a
steeper curve, with the 10-year             up 1.4 basis points
at 0.571%.             

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and
Jonathan Oatis)
  
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