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CANADA FX DEBT-C$ rallies as Fed opens the door to fewer rate hikes

·2 min read

(Adds analyst quotes and details throughout; updates prices) * Canadian dollar strengthens 0.5% against greenback * Touches its strongest since June 13 at 1.2809 * Price of U.S. oil settles 2.4% higher * 10-year yield hits a 3-month low at 2.699% By Fergal Smith TORONTO, July 27 (Reuters) - The Canadian dollar strengthened to a six-week high against its U.S. counterpart on Wednesday as investors weighed prospects of the Federal Reserve slowing the pace of interest rate hikes following its latest outsized increase. The loonie was trading 0.5% higher at 1.2820 to the greenback, or 78.00 U.S. cents. It touched its strongest level since June 13 at 1.2809. "The Federal Reserve has cracked open the door to fewer rate hikes this year," said Adam Button, chief currency analyst at ForexLive. "There is a massive risk-on bid." U.S. stock markets jumped and the U.S. dollar fell against a basket of major currencies after the Fed raised interest rates by 75 basis points, as was widely anticipated, but noted signs of a softening economy. Another "unusually large" increase may be appropriate at the Fed's September meeting, but the decision will be determined by the incoming economic data between now and then, Fed Chair Jerome Powell said. "The market has been camped out in U.S. dollars due to fear and uncertainty," Button said. "There is a lot of money to move out of dollars when the Fed takes its foot off the economic brakes." Adding to support for the loonie, the price of oil, one of Canada's major exports, settled 2.4% higher at $97.26 a barrel after data showed U.S. crude oil stockpiles falling last week. Canadian bond yields were lower across a more deeply inverted yield curve, tracking the move in U.S. Treasuries. The 10-year yield touched its lowest since April 26 at 2.699% before recovering slightly to 2.746%, down 7.9 basis points on the day. It was trading about 34 basis points below the Canadian 2-year yield. (Reporting by Fergal Smith; Editing by Paul Simao and Alistair Bell)