CANADA’S FX DEBT – Canadian dollar weakens as BoC backs off rate hike

 (Adds analyst quotes and details throughout; updates prices)
    * Canadian dollar weakens 0.4% against the greenback
    * Trades in a range of 1.2560 to 1.2688
    * Price of U.S. oil settles 2% higher
    * Canadian 10-year yield rises 2.2 basis points

    By Fergal Smith
    TORONTO, Jan 26 (Reuters) - The Canadian dollar fell against
its broadly stronger U.S. counterpart on Wednesday as the Bank
of Canada surprised some investors by leaving interest rates on
hold, offsetting support for the currency from higher oil
prices.
    The Bank of Canada will soon start hiking interest rates
from record lows to combat inflation, Governor Tiff Macklem
said, after the central bank left its policy rate at a record
low of 0.25%.             
    Money markets had seen about a 70% chance that the central
bank would hike on Wednesday for the first time since October
2018. They now expect lift-off in March.           
    "The disappointment from the Bank of Canada will quickly
fade while the tailwind from oil is significantly growing," said
Adam Button, chief currency analyst at ForexLive.
    "The open question is how much of the recent rise is
fundamental and how much is political."
    Rising political tensions between Russia and Ukraine have
added to concerns about further disruption in an already-tight
market for oil, one of Canada's major exports. U.S. crude oil
futures        settled 2% higher at $87.35 a barrel.
    The Canadian dollar        was trading 0.4% lower at 1.2680
to the greenback, or 78.86 U.S. cents, after trading in a range
of 1.2560 to 1.2688.
    The U.S. dollar        rallied against a basket of major
currencies and Wall Street gave back its earlier gains as the
Federal Reserve signaled that it is likely to raise U.S.
interest rates in March and later launch a significant reduction
in its asset holdings.
    Canadian government bond yields rose across the curve
although by much less than U.S. rates. The 10-year            
was up 2.2 basis points at 1.826%.
    Last Wednesday, it touched its highest level in nearly three
years at 1.905%.

 (Reporting by Fergal Smith
Editing by Bernadette Baum and Sandra Maler)
  

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