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CANADA FX DEBT-Loonie hits 2-week low as Fed muddies outlook for rates

By Fergal Smith

(Adds market player quotes and details throughout; updates prices) * Loonie touches a two-week low at 1.3310 * Canada's annual inflation rate falls to 1.9% in August * Price of U.S. oil decreases 2.1% * Canada's 10-year yield touches a six-day low at 1.409% By Fergal Smith TORONTO, Sept 18 (Reuters) - The Canadian dollar weakened to a two-week low against its U.S. counterpart on Wednesday as oil prices fell and after the U.S. Federal Reserve was less dovish than some investors had anticipated. The Fed cut interest rates, as expected, but gave mixed signals regarding future rate moves, boosting the greenback . "I think markets were broadly positioning themselves for a dovish surprise today from the Fed," said Erik Bregar, head of FX strategy at the Exchange Bank of Canada. "If you were expecting something dovish, you cover your U.S. dollar short and you buy dollars and that hurts CAD." Meanwhile, the price of oil, one of Canada's major exports, extended the previous day's declines after Saudi Arabia said it would quickly restore full production following last weekend's attacks on its facilities and as U.S. crude stockpiles rose unexpectedly. U.S. crude oil futures settled 2.1% lower at $58.11 a barrel. At 4:22 p.m. (2022 GMT), the Canadian dollar was trading 0.3% lower at 1.3285 to the greenback, or 75.27 U.S. cents. The currency touched its weakest intraday level since Sept. 4 at 1.3310. The decline for the loonie came as data from Statistics Canada showed that Canada's annual inflation rate dipped to 1.9% in August from 2.0% in July on lower gasoline prices. Still, the average of the Bank of Canada's three preferred measures of core inflation was little changed at 2.0%, which could encourage the Bank of Canada to leave interest rates on hold over the coming months even as some of its global peers have eased. "The inflation numbers as we saw them this morning, they don't push the Bank of Canada to follow the Fed," said Hosen Marjaee, senior portfolio manager, at Manulife Asset Management. Canadian government bond prices were higher across a flatter yield curve. The two-year rose 2.5 Canadian cents to yield 1.598% and the 10-year was up 15 Canadian cents to yield 1.433%. The 10-year yield touched its lowest intraday since Sept. 12 at 1.409%. (Reporting by Fergal Smith Editing by Nick Zieminski and Sonya Hepinstall)