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CANADA FX DEBT-C$ rallies to 6-week high as prospects of BoC pause recede

·2 min read

(Adds analyst quotes and details throughout; updates prices) * Canadian dollar strengthens 0.7% against the greenback * Touches its strongest since April 21 at 1.2561 * Price of U.S. oil settles 1.4% higher * Canadian 2-year yield climbs 5.2 basis points By Fergal Smith TORONTO, June 2 (Reuters) - The Canadian dollar on Thursday strengthened for the sixth day in seven against its broadly weaker U.S. counterpart as oil prices rose and the Bank of Canada signaled it has much more work to do to bring inflation under control. Canada's central bank will probably have to raise its policy rate to the top of its neutral range, double its current level of 1.5%, and could go higher, to prevent soaring inflation from becoming entrenched, Deputy Governor Paul Beaudry said. "The chances of a Bank of Canada pause in the fall are dwindling," said Adam Button, chief currency analyst at ForexLive. "The Bank of Canada is signaling that they are prepared to do more." On Wednesday, the central bank hiked by half a percentage point. Money markets expect another one and a half percentage points of tightening by year end. The price of oil, one of Canada's major exports, settled 1.4% higher at $116.87 a barrel after U.S. crude inventories fell more than expected amid high demand for fuel and OPEC+ agreed to boost crude output to compensate for a drop in Russian production. "They've thrown everything they can think of at cooling off the energy market and it just keeps going higher," Button said. The Canadian dollar was up 0.7% at 1.2570 per greenback, or 79.55 U.S. cents, after touching its strongest since April 21 at 1.2561. The currency is expected to gain further ground over the coming year as the BoC likely continues to raise interest rates aggressively and high commodity prices bolster Canada's economic outlook, a Reuters poll showed. Canadian government bond yields rose across a flatter curve. The 2-year climbed 5.2 basis points to 2.845%, nearly its highest since September 2008. (Reporting by Fergal Smith; Editing by Jan Harvey and Will Dunham)