CANADA FX DEBT-Canadian dollar gains as investors eye potential rate hike

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* Canadian dollar strengthens 0.5% against the greenback * Trades in a range of 1.2560 to 1.2630 * Price of U.S. oil rises 1.6% * Canadian 10-year yield was little changed at 1.801% By Fergal Smith TORONTO, Jan 26 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil prices rose and investors awaited a key interest rate decision by the Bank of Canada, with some investors expecting the first hike since October 2018. The loonie was 0.5% higher at 1.2570 to the greenback, or 79.55 U.S. cents, after trading in a range of 1.2560 to 1.2630. Among G10 currencies, only the Norwegian crown notched a bigger gain. Norway, like Canada, is a major oil producer. Oil moved within sight of a seven-year high, supported by tight supply and geopolitical tensions in Europe and the Middle East that raised concerns about further disruption. U.S. crude prices were up 1.6% at $86.93 a barrel, while U.S. stock index futures gained ground following two days of turbulent trading, helped by stellar results from Microsoft. The Bank of Canada policy announcement is due at 10 a.m. ET, with money markets seeing a 70% chance of a hike. The urgency that the market sees for the BoC to start tightening comes as Canadian inflation, which hit a 30-year high of 4.8% in December, threatens to overshoot the central bank's 2% target for longer by feeding expectations for future price increases. "The BoC is clearly running out of reasons to keep interest rates at emergency low levels," Adam Cole, chief currency strategist, RBC Europe Limited, said in a note. Investors are also looking to the outcome of the Federal Reserve's policy meeting later in the day. Investors expect the Fed to signal an interest rate increase in March. Canadian government bond yields were little changed across the curve, with the 10-year trading at 1.801%. Last Wednesday, it touched its highest level in nearly three years at 1.905%. (Reporting by Fergal Smith Editing by Bernadette Baum)

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