C$ pulls back from 2-year low as bond market steadies



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Loonie touches its weakest since May 2020 at 1.3832

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Price of U.S. oil rises 1.8%

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Canadian bond yields ease across curve

TORONTO, Sept 28 (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Wednesday, pulling back from its weakest level in more than two years, as oil prices rose and the Bank of England moved to dampen fears of contagion across the financial system.

Global equities rose from two-year lows and bond yields fell after the BoE said it would step into the bond market to stem a damaging rise in borrowing costs.

Investors have worried that higher borrowing costs could tip some major economies into recession as central banks hike interest rates aggressively to tackle inflation.

Canada is a major producer of commodities, including oil, so the loonie is particularly sensitive to shifts in investor sentiment.

U.S. crude CLc1 prices were up 1.8% at $79.87 a barrel as production cuts caused by Hurricane Ian outweighed downward pressure from a strengthening U.S. dollar and expected U.S. crude stockpile builds.

The Canadian dollar CAD= was trading nearly unchanged at 1.3720 to the greenback, or 72.89 U.S. cents, after touching its weakest since May 2020 at 1.3832.

As higher borrowing costs slow Canada's outsized housing market, investors are betting the Bank of Canada will raise interest rates to a lower end-point than the Federal Reserve, an outcome that could spell more trouble for the Canadian dollar.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year CA10YT=RR fell 8.7 basis points to 3.234%, pulling back from its highest since June 28 earlier in the day at 3.368%.

Supply will be a focus, with the Bank of Canada due to auction C$1.5 billion ($1.1 billion) of 30-year bonds. The bidding deadline has been set for 12 p.m. ET (1600 GMT).
Reporting by Fergal Smith, editing by Nick Zieminski

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