Canadian dollar rallies as Fed opens door to ending rate hikes

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto
A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, January 23, 2015. REUTERS/Mark Blinch
  • Canadian dollar gains 0.4% against the greenback
  • Canadian new home prices fall 0.2% in February
  • Price of U.S. oil settles 1.8% higher
  • Canadian bond yields tumble across curve

TORONTO, March 22 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as investors cheered a signal by the Federal Reserve that it is nearing a pause in its tightening campaign.

The Canadian dollar was trading 0.4% higher at 1.3660 to the greenback, or 73.21 U.S. cents, approaching its strongest level in recent weeks.

"The Fed is clearly doing its best to put on a brave face by raising rates and sticking with quantitative tightening," Royce Mendes, head of macro strategy at Desjardins, said in a note.

"But the accompanying statement leaves the door open to further stress in the financial system ending this rate hiking cycle prematurely."

Wall Street rallied and the U.S. dollar raised interest rates by a quarter of a percentage point but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets.

The Bank of Canada moved to the sidelines at a policy decision earlier this month. Minutes from that meeting showed that the central bank was concerned about inflation sticking above its 2% target and agreed there might be a need to tighten monetary policy further.

Since then, money markets have shifted from expecting another rate hike to pricing in rate cuts over the coming months.

In domestic data, new home prices fell 0.2% month-over-month in February following a similar decrease in January as the rapid increase in mortgage rates over the last year slowed housing demand.

The price of oil , one of Canada's major exports, settled 1.8% higher at $70.90 a barrel, helped by a weaker U.S. dollar.

Canadian government bond yields tumbled across the curve, tracking the move in U.S. Treasuries. The 10-year was down 16.7 basis points at 2.726%.

Reporting by Fergal Smith; editing by Jonathan Oatis

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