CANADA FX DEBT-C$ posts 13-day high as Fed rate cut boosts global outlook

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Canadian dollar gains 0.4% against the greenback

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Touches its strongest level since Sept. 6 at 1.3534

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Price of U.S. oil increases 1.8%

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Ten-year yield rises further above 2-year rate

By Fergal Smith

TORONTO, Sept 19 (Reuters) - The commodity-linked Canadian dollar strengthened to nearly a two-week high against its U.S. counterpart on Thursday as the Federal Reserve's larger-than-usual interest rate cut improved the outlook for the global economy.

The loonie was trading 0.4% higher at 1.3550 to the U.S. dollar, or 73.80 U.S. cents, after touching its strongest level since Sept. 6 at 1.3534.

"The market is buying the 'soft landing' outlook," said Adam Button, chief currency analyst at ForexLive, referring to a scenario in which inflation is tamed without a painful recession or large rise in unemployment. "A dovish stance from the Fed is a major tailwind for global growth."

Wall Street's main indexes soared after the Fed began its easing cycle on Wednesday with a half-percentage-point reduction in rates, rather than a quarter-percentage-point move, and forecast more rate cuts to come.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to global economic prospects. U.S. crude oil futures were up 1.8% at $72.20 a barrel.

The Bank of Canada has also been lowering borrowing costs. Even though the Canadian central bank takes rate decisions on a consensus basis, this does not mean governing council members all share the same view on the path for rates, BoC Deputy Governor Nicolas Vincent said in a speech in Sherbrooke, Quebec.

Canadian retail sales data for July, due on Friday, could offer clues on the pace of expected further easing by the BoC. Economists expect sales to rise 0.6% after falling 0.3% in June.

Canadian bond yields were mixed across a disinverted curve. The 10-year was up 1.7 basis points at 2.945%, while it moved 3.1 basis points further above the 2-year rate to a spread of 3.6 basis points.

On Wednesday, the spread turned positive for the first time since July 2022. (Reporting by Fergal Smith; Editing by Paul Simao)