CANADA FX DEBT-Canadian dollar climbs to 2-week high as FX volatility falls

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar gains 0.3% against the greenback
    * Touches its strongest since March 3 at 1.2631
    * Price of U.S. oil settles 8.4% higher

    By Fergal Smith
    TORONTO, March 17 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Thursday as falling
measures of currency market volatility showed that investors
were growing more confident holding riskier, commodity-linked
currencies rather than the greenback.        
    The loonie        was trading 0.3% higher at 1.2640 to the
greenback, or 79.11 U.S. cents, after touching its strongest
intraday level since March 3 at 1.2631.
    Canada, like Australia and New Zealand, is a major producer
of commodities. The Australian and New Zealand dollars
             also gained ground.    
    "Risk appetite is slowly returning to currency markets, with
volatility expectations falling and flows into high-beta
currencies rebounding," said Karl Schamotta, chief market
strategist at Corpay.
    Canadian dollar 3-month implied volatility has declined to
7.175% from 8.15% earlier this month, FX options market data
showed.
    "Traders know that the (U.S.) dollar typically falls in the
six months after a Fed tightening cycle begins, and are
positioning for outperformance in its major counterparts,"
Schamotta said.
    The U.S. dollar        fell to a one-week low one day after
the Federal Reserve hiked interest rates for the first time
since 2018, with investors watching developments in
Russia-Ukraine talks.                     
    Renewed focus on supply shortages in coming weeks due to
sanctions on Russia helped the price of oil, one of Canada's
major exports, rebound from several days of losses. U.S. crude
oil futures        settled 8.4% higher at $102.98 a barrel.
                
    A commodities rally sparked by Russia's invasion of Ukraine
will push Canadian inflation higher for longer, with the
headline rate now seen peaking at or above 6%, forcing the
central bank to raise interest rates more aggressively,
economists told Reuters.             
    The Canadian 10-year yield             was trading nearly
unchanged at 2.190%, after touching on Wednesday its highest
intraday level since December 2018 at 2.273%.

 (Reporting by Fergal Smith
Editing by Paul Simao and Grant McCool)